The AI revolution in investment management is fullyunderway.
9 out of 10 investment managers are currently using AI or plan to use AI in their investment processes.
With all these new innovations coming into the fold, new skills are needed to stay on top one of the most disruptive technological developments of our lifetime.
Enter prompt engineering.
Prompt engineering is the art and science of crafting the text inputs (prompts) that guide the behavior and output of large language models (LLMs) like ChatGPT.
Here's how to think of it:
They have immense potential, but they need specific instructions to produce the desired result
The quality of your prompts determines how well the LLM will perform the task you want.
They understand how to word prompts to steer the LLM in the right direction, get the best performance, and avoid potential pitfalls.
Well-crafted prompts allow you to tap into the full range of an LLM's capabilities, going far beyond basic question-answering.
Prompts guide the output, enabling you to generate text formats, writing styles, or responses tailored to your needs
Clever prompts can help mitigate biases or tendencies towards incorrect responses that some LLMs exhibit.
Being familiar with how LLMs work, their strengths, weaknesses, and different model architectures (e.g., GPT-3).
Learning to balance open-ended prompts for exploratory work with highly specific prompts for precision tasks.
Mastering the use of a few well-chosen examples within your prompts to guide the LLM towards the style or format you desire.
Learning how to provide the LLM with the appropriate background information it needs to generate relevant and accurate outputs.
Being prepared to fine-tune your prompts based on the results. Prompt engineering is often an experimental process.
LLMs, guided by expert prompts, can parse complex data feeds, identify anomalies, reformat data to match specific systems, and handle complex calculations – drastically reducing manual intervention.
Prompt engineers can design prompts that instruct LLMs to reconcile trades, positions, and cash flows across disparate systems, flag discrepancies, and even suggest potential resolutions, significantly accelerating the process.
Using prompts, LLMs can be instructed to generate tailored investor reports, extract key insights from performance data, and even write initial drafts of commentary – saving time and enhancing the quality of reporting.
The Challenge: MBO teams lose time manually monitoring for exceptions and often react to problems after they've caused delays or errors.
Prompt Engineering Solution: Prompt engineers design prompts that enable an LLM to:
Outcome: MBO operations become predictive, preventing problems rather than firefighting them.
The Challenge: Onboarding new clients/funds is labor-intensive, with manual setup across systems and prone to data entry errors.
Prompt Engineering Solution: Prompt engineers craft prompts that allow an LLM to:
Outcome: Onboarding becomes faster, more accurate, and less resource-intensive, allowing firms to scale faster.
The Challenge: Each MBO team has operational knowledge scattered in documents, emails, and people's heads, making it time-consuming to find answers to complex questions.
Prompt Engineering Solution: Prompt engineers work with MBO teams to:
Outcome: MBO teams gain an accessible knowledge source for troubleshooting, training new hires, or exploring process improvement ideas.
The Challenge: Portfolio managers often spend significant time manually dissecting performance, trying to identify the specific drivers behind positive or negative returns.
Prompt Engineering Solution: Prompt engineers develop prompts that instruct the LLM to:
Outcome: Portfolio managers gain a powerful decision-support tool, empowering them to rapidly identify the root causes of performance and make better-informed adjustments.
The Challenge: Generating comprehensive ESG (Environmental, Social, Governance) reports is a data-heavy task, with information often scattered across providers and lacking standardization.
Prompt Engineering Solution: Prompt engineers craft prompts enabling LLMs to:
Outcome: Asset managers save time, produce more consistent ESG reports, and can better respond to growing investor demands for transparency.
Today's Challenge: Generating complex trade orders, especially in less liquid markets or when executing specific strategies, can be tedious and error-prone.
Prompt Engineering Solution: Prompt engineers collaborate with traders to design prompts that allow the LLM to:
Important Note: In heavily regulated areas like trade generation, the role of the prompt engineer would likely focus on efficiency and error reduction, with careful human oversight and compliance checks remaining critical.
The rapid advances in technology are truly mind-blowing, and investment management firms must stay ahead of the trends if they want to remain relevant.
And when investment operations teams make use of prompt engineering, they will be leaders in their space.
By carefully crafting the instructions that guide AI models, these firms can streamline processes, uncover insights, and ultimately gain a competitive edge.
AI will continue to revolutionize the industry at warp speed, and prompt engineering will become an essential tool for firms seeking to maximize their return on AI investments.
Ready to Start the AI and Digital Transformation Journey for Your Operation? Contact Empaxis.
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