Fund managers now use artificial intelligence in at least six distinct parts.

The majority of fund managers now use artificial intelligence in at least six distinct parts of their investment processes, Ethan Spiegel, senior investment analyst at Zenith Investment Partners, says.

“We’ve moved beyond whether managers are using AI to how they’re using it, and it is more varied than most people expect,” Spiegel says.

The six ways fund managers are applying AI in practice are:

• improving operational efficiencies
• information sourcing and fact-finding
• data verification and challenging ideas
• industry research
• data processing, and
• coding.

The most common application, improving operational efficiencies, involves automating routine tasks such as drafting emails, writing internal memos and handling administrative work. This use case cuts across all manager types and often serves as the gateway to wider adoption.

“Once a team sees AI take an hour off their week on admin, they start asking what else it can do, and that’s usually how the adoption begins,” Spiegel says.

Another widespread use is information sourcing and fact-finding, where analysts rely on AI to quickly summarise large volumes of reports and stay on top of news flow for individual stocks and sectors. Spiegel says this doesn’t replace direct engagement with company management, suppliers or competitors, which remains central to fundamental investing.

Analysts are also turning to AI to stress-test their investment theses and uncover risks they may have overlooked. While the technology most often confirms existing views, it regularly highlights factors that had not been properly weighted.

“This is a great way of pressure-testing ideas,” Spiegel says.

“Most of the time, AI agrees with you, which is reassuring in itself, but it sometimes flags something that hadn’t been weighted properly, and that’s where it can be extremely beneficial.”

For industry research, AI can help analysts rapidly get up to speed on niche sectors and unfamiliar market structures, and is especially useful for research teams covering a broad range of asset classes.

Bradley Antman, investment analyst at Zenith, says the technology has heavily reduced the time it takes for research, allowing fund managers more time to focus on more pressing priorities.

“AI has compressed this from days to hours, which means the meeting itself can go straight to the questions that actually matter,” Antman says.

Among quantitative managers, data processing is a key use case. These firms work with vast amounts of alternative data, including credit card transactions and foot traffic numbers, to inform their investment theses. AI is used to clean that data by removing outliers and errors before it feeds into their models.

The final use case, coding, has long been a feature of quant management, though has not previously been executed by AI. Internally developed AI tools are now accelerating model building and refinement. However, Antman says that coding had become so accessible it was now a baseline expectation rather than a competitive edge.

“Coding was arguably the first place quant managers used something AI-like, long before anyone called it that. What’s changed is that it’s no longer a point of difference between managers,” Antman says.

“That said, what AI is not doing is selecting stocks. Humans can interpret probabilistic outputs, build relationships with company management, and make investment calls – traits that are becoming more valued, not less.

“AI has access to all the information that exists today, but it doesn’t have an understanding of what might come tomorrow, which is where a manager’s relationships and deep experience drive value for investors.”

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Andrew Yap

Zenith Investment Partners’ survey of 430 Australian advisers has identified a sizable gap between where practices expect growth to come from and how prepared they are to service it.

The From Adoption to Advantage 2026 report finds three in four advisers (75 per cent) rate the growing pool of retirees and pre-retirees as very or extremely important to their practice’s growth over the next two to five years. Additionally, 57 per cent identify the intergenerational transfer of wealth, as ageing clients pass portfolios to their children, as a priority.

Yet the research shows just 31 per cent of managed account users currently run a strategy specifically designed for clients who are in the decumulation stage, despite 90 per cent of practices already having decumulation clients on their books. When it comes to the inter-generational wealth transfer, just 26 per cent of practices already have a specific strategy for engaging the adult children who stand to inherit their clients’ portfolios. A further 53 per cent are still planning to build one, while 21 per cent have no plan to do so.

“Advisers can see exactly where their next five years of growth is coming from. It’s the client in front of them today moving into retirement, and it’s the children who will eventually inherit what’s left,” Andrew Yap, head of portfolio solutions at Zenith says.

“What this research shows is that many practices are not yet set up to provide a distinct investment approach for clients already drawing down or having a clear plan for engaging the next generation.

“You can’t build a growth strategy around a client base you’re not properly set up to serve.”

Larger practices are further ahead on next-generation engagement. Among practices managing 300 or more clients, 29 per cent already have a specific strategy in place, compared with 20 per cent of moderate-sized practices.

The research also found that managed accounts are becoming the default operating model for advice practices looking to scale, with 66 per cent of advice practices now using managed accounts, up from 58 per cent in the previous year. The findings come as Australia’s managed accounts sector continues to expand rapidly, with $292.9 billion under management as at December 2025, up 25.8 per cent in a single year and projected to exceed $470 billion by 2030, according to IMAP and Milliman’s Managed Accounts FUM Census.

Zenith’s research points to a path forward, with advisers who commit to managed accounts reporting substantially stronger results for clients. 91 per cent of practices with the majority of client funds in managed accounts report a positive impact on client outcomes and satisfaction, compared with 64 per cent of those who have only adopted the structure lightly.

“The advice practices best positioned for what lies ahead are the ones treating retirement income needs and the inter-generational wealth transfer as distinct disciplines, rather than extensions of what they already do,” Yap says.

“Advisers who have committed a greater share of client funds to managed accounts report fewer gaps in retirement income support than those who have adopted managed accounts more lightly.

“That means advisers need a genuinely different investment approach for someone living off their portfolio, and it means bringing the next generation into the room years before they inherit anything, rather than scrambling to build a relationship with them after the fact.

“The advisers seeing the strongest results are those who have committed to managed accounts and are using them to strengthen their retirement and next-generation strategies.

“The research suggests the practices already doing this well provide a clear model for others to follow.”

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Rodney Sebire

Australian bank hybrids have long been a favourite in income-focused client portfolios for their combination of regular income, tax benefits through franking credits, and the reassurance of major bank backing making them easy to recommend and easy for clients to understand. But all of this is now changing.

The Australian Prudential Regulation Authority (APRA) has confirmed that hybrid securities will be phased out of the Australian market, beginning in 2027 and for advisers, this raises a straightforward question: what do we use instead?

Beyond simply swapping hybrids for bank bonds, fund managers have developed a range of new strategies that aim to deliver comparable income. For example, franking credits won’t be replicated, which is worth noting as the most significant change for tax-sensitive clients, but the income itself can be maintained. Beyond that, there are three alternative types of strategy worth understanding.

Listed notes

These are ASX-listed securities that work similarly to hybrids in terms of how clients experience them, i.e. regular income distributions, listed on the exchange, and a fixed end-date. The key difference is that the structure is simpler and the risk is more transparent. Some include a buffer where the manager absorbs any losses up to a certain level before investors are affected. These are a natural first conversation for clients who currently hold hybrids and want something familiar.

Credit-focused ETFs

These are exchange-traded funds that invest across a range of Australian fixed income securities, and are actively managed to generate income above the cash rate. They offer daily liquidity, are straightforward for clients to understand, and are well suited for clients who valued hybrids for their income but don’t need the listed familiarity.

Leveraged investment grade credit

This option is a more sophisticated approach, where managers use borrowing to amplify the income from high-quality bond portfolios. The credit risk remains investment grade and, in many cases, stronger than the underlying credit risk of hybrids, but the income generated can be comparable. These strategies are best suited to clients who understand that leverage is involved and are comfortable with how that can affect returns.

By Rodney Sebire, head of global fixed income

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Joining Zenith’s portfolio solutions team and based in Sydney, Charl Marais brings more than 20 years of experience across portfolio management, manager research and selection, and multi-asset strategies.

Most recently, Marais was a senior portfolio manager at Yarra Capital Management, where he oversaw investment performance across the business’ funds and mandates, and held responsibility for external manager research and selection.

Prior to Yarra Capital, he was a senior portfolio manager at Nikko Asset Management. He has also held roles at Suncorp Group, Morningstar, and earlier in his career at Absa Bank. Marais holds a Chartered Financial Analyst (CFA) designation and a Financial Risk Manager (FRM) certification, as well as a Bachelor and Master of Chemical Engineering from Stellenbosch University.

Marais will report to head of portfolio solutions, Andrew Yap, who says the appointment reflects the growing demand for Zenith’s portfolio management capabilities.

“Charl brings a depth of experience that spans institutional portfolio management, external manager research, and multi-asset portfolio construction across some of Australia’s most respected investment firms,” Yap says.

“His experience demonstrates exactly the kind of rigorous, performance-focused approach our growing client base expects. We’re looking forward to the expanded capacity his appointment will bring to the team.”

Cave rejoins Zenith having originally entered the business in 2017 as a senior investment analyst, before departing in 2023.

He returns to Zenith from Frontier Advisors, where he spent three years as a senior investment consultant on the real assets team conducting manager research and advising institutional clients on private infrastructure. He holds a Bachelor of Economics and Finance from RMIT University.

In his new role, he will be based in Melbourne and report to head of income research and head of sustainability, Dugald Higgins. Higgins welcomed Cave’s return to the business.

“Dan has deep expertise in income research and a thorough understanding of how Zenith operates – he knows our standards, our methodology and our clients,” Higgins says.

“He returns with a broader perspective on the institutional market and a sharper focus on private markets, which adds a valuable dimension to our income research capability. This is a newly created role and Dan will play a central part in continuing to strengthen our offering.”

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Damien Hennessy

Australian equities are likely to remain under pressure in 2026, with a combination of limited domestic exposure to artificial intelligence and relatively tight local monetary policy making it difficult to build a strong case for the broad local market, Zenith head of asset allocation Damien Hennessy says.

“The lack of AI exposure in the Australian market has been a factor, but our interest rate positioning is also a headwind for markets, particularly when you go it alone,” Hennessy says.

“Australia’s monetary policy path is encouraging investors to look elsewhere. Rate hikes will eventually impact growth, and that gives investors an excuse to look to other areas where growth outlooks are improving.”

Hennessy says while the ASX’s materials and resources sector has provided some relief, most large cap stocks have disappointed.

“Australia has a healthy mining sector, but everything outside that in the large cap space has been a drag on the market, and the outlook isn’t looking much better for the rest of 2026,” Hennessy says.

“Earnings signals indicate that the most positive markets are the US and Japan. Japan also stacks up well on monetary conditions. And on a valuation basis, the UK and Europe stand out.

“Australia doesn’t really rate highly on any individual driver, and this is a problem.

“Until we start to see a valuation signal or earnings signal that looks positive, it is hard to build a case for the broad Australian market to do well. But that is not to say the resource sector specifically can’t do well.”

As a result, Hennessy prefers global equities over domestic equities but flags the global monetary policy cycle as a key risk for months ahead.

“We are overweight global equities and underweight Australia. We like the US, emerging markets and Japan specifically,” Hennessy says.

“One of the key factors we will be looking at over the next few months will be the monetary policy cycle. We seem to be coming out of a phase where the majority of central banks were easing, to a phase that could see central banks tightening.

“Traditionally, when that happens, it tends to be a headwind for the likes of emerging markets and Japan. We aren’t at that stage yet, but it is certainly something we’ll be watching closely.”

On fixed income, Zenith is more positive on Australian, Japanese and UK sovereign bonds, which it regards as trading near fair value. US bonds, by contrast, are considered relatively expensive at current levels, which Hennesy says warrants a more cautious approach.

“While we are negative on Australian equities, it’s almost the complete opposite when you look at Australian bonds,” Hennessy says.

“To build a case for rates to go above 4.6 per cent, then you’re arguing that the economy is either going to be amazingly resilient and growing at 2.5 per cent, or inflation is going to move beyond 3.5 per cent in core terms – neither of which I think is likely. So, with bond markets close to 5 per cent, I think it’s factoring in all the bad news.”

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Dugald Higgins

With global conflict driving investor interest in defence sectors, Dugald Higgins, head of responsible investment at Zenith Investment Partners, says excluding defence from portfolios can raise difficult questions for investors.

The current environment presents one of the clearest examples yet of how responsible investing is moving beyond screening frameworks and into a more complex and politically charged space. This is particularly pertinent as the Federal Government has endorsed recommendations that the Department of Defence establish a framework to enable investment providers to identify suitable finance options for future defence requirements. In April 2026, the Government also announced a $53 billion increase in defence spending over the next decade.

This follows a global trend where geopolitical tensions and government rearmament programs are driving inflows into defence exposures.

Higgins says responsible investment represents a broad spectrum of different investment approaches and isn’t binary. Depending on how fund managers design their strategies, different elements can be utilised within a broader ‘responsible’ framework.

“Responsible investment is a priority for many investors, and for years armaments have often been screened out as part of that ethical position,” Higgins says.

“However, being ‘responsible’ doesn’t necessarily mean being ‘ethical’, nor is being ethical the same as incorporating ESG considerations into an investment process.”

Investors may hold indirect exposure to the defence sector through logistics businesses, manufacturers, and technology or communications companies whose products and services are used in military settings or conflict zones. Exposure can also come through sovereign debt, including government bonds issued by countries involved in arms exports.

“The line is much harder to draw than many investors realise,” Higgins says.

“Like it or not, even the best-intentioned investors probably have some exposure to the defence sector given its broad nature of supply chains and activities. At the very least, investors can be indirectly exposed through government bonds from countries involved in arms exports such as the US, the world’s largest arms exporter.”

Global issuance of defence ETFs has more than doubled over the past year, while assets under management have increased five times to A$109 billion. Despite this, over 90 per cent of those assets are issued by managers that are signatories to the UN-backed Principles for Responsible Investment, highlighting an increasingly visible contradiction within the market.

Higgins says one of the biggest challenges is defining what defence exposure actually looks like in modern portfolios, with the debate moving from the margins to the mainstream.

“We are seeing significant growth in defence-related investment vehicles, including from managers that align themselves with responsible investment frameworks,” Higgins says.

“That naturally creates confusion for investors and raises a more fundamental question around whether defence and ESG can coexist. We believe ESG is foundational and would argue its importance when assessing defence companies which pose high levels of regulatory, financial, legal and reputational risks. But the morality of these investments is a different question.”

Defence companies can face a wide range of material ESG issues, including human rights violations, corruption, political instability, environmental and health impacts, land contamination and high carbon emissions.

Higgins says investors should be wary of treating the sector as either automatically acceptable or automatically excluded without deeper analysis.

“Investors are rightly reassessing the role of defence thematics in portfolios, particularly as the geopolitical landscape changes”, Higgins says.

The attractions are undeniable, given that the average one-year return for defence themed ETFs on the ASX was 32.4 per cent for the year to 31 March 2026, versus 11.6 per cent for the ASX 300 Index.

“But capital moving into this sector needs to be assessed through a genuine ESG lens. Labels alone are not enough. Investors need clearer definitions, greater transparency and a more rigorous understanding of the risks involved.”

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Dugald Higgins

Once exclusive to large institutions, inflows to private markets funds have been strong as investors flock to access well-performing asset classes such as private equity, credit, infrastructure and property. But while these structures provide exposure to those markets, Dugald Higgins, head of responsible investment and real assets at Zenith Investment Partners, says investors also need to be aware of the liquidity constraints of the asset class.

“The industry has experienced a period of real growth, which is typical of the later stages of a market cycle. But now we’re reaching the point where investor expectations around access to capital will meet the reality that many private market assets simply can’t be sold quickly,” Higgins says.

“Private assets are less traded, less transparent, and often require active, hands-on management to realise value. Natural liquidity stems from the underlying assets, not the fund structure.

“This shouldn’t be a disincentive to pursue attractive opportunities, but it should be done in a way that doesn’t make your portfolio vulnerable to shocks.

“Private market funds often look smoother than listed markets because assets aren’t priced daily. But that doesn’t mean the underlying value isn’t changing. When valuations are revised, this can force a market adjustment – and fast.

“Illiquidity shouldn’t come as a surprise to investors. But they often seem to forget its implications when navigating market turbulence and portfolio rebalancing. Liquidity gives asset allocators free reign to adjust to market conditions. Private markets are by nature unwieldy. Failure to critically assess these implications usually leads to disorderly behaviour when the market turns, as we are starting to see in some areas, particularly offshore. The winners will be not just those who’ve planned to navigate through these periods, but can take advantage of pockets of market dislocation.”

Andrew Yap, head of portfolio solutions at Zenith, says despite these risks, private markets remain an important component of diversified portfolios, particularly in sectors such as infrastructure and real estate.

Improved fund structures, greater platform capability, and growing adviser sophistication have steadily lowered the barriers to entry. What was once operationally complex or structurally inaccessible in private markets, is increasingly being delivered in investable formats suitable for diversified portfolios.

“For investors, allocations to private markets are best viewed as complementary exposures designed to sit alongside daily liquid portfolios, not replace them.

“The benefits of private markets don’t come without trade-offs – specifically, liquidity. Unlike daily-liquid portfolios, private market strategies typically offer periodic redemption windows, structured to align investor liquidity with the underlying assets. Illiquid assets require patient capital, and portfolios are more resilient when redemption terms reflect that reality.

Yap emphasised the critical role of deep investment research and experienced portfolio managers in incorporating private markets into client portfolios.

“You can’t assess liquidity risk, unintended portfolio biases or volatility exposure without sophisticated systems – you need to drill into the underlying holdings and understand how a portfolio would behave under stress,” he says.

Yap says investors considering private markets should go in with eyes wide open.

“Over the long term, private market funds have delivered solid returns. But investors should go in understanding that their money may be tied up for longer than they initially expect, and those funds may not always be available when they want it.”

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Damien Hennessy

Emerging Asian economies are highly dependent on imported oil, particularly through the Strait of Hormuz, so it is not surprising that these equity markets have come under pressure over the past two weeks, says Zenith Investment Partners investment director, Damien Hennessy.

Higher oil prices and the prospect of higher inflation suggest that hopes for near term rate cuts have faded, he says, and along with a stronger USD, this has undermined emerging market equities during March.

“Our view remains that emerging market equities are set to climb in 2026 driven by an improving global cycle, improved external and internal balance sheets, a modestly weaker USD and more attractive valuations compared to developed markets,” says Hennessy.

“Emerging markets have lagged developed markets since 2021. It’s been one-way traffic in favour of the United States.

“But that has shifted over the past 12 months, as investors reconsider high valuations in US equities and rotate towards cheaper opportunities across Asia and other developing economies. The USD has fallen by around 10 per cent over the past 12 months, which is a historical indicator of positive emerging market performance,” he says.

While the softer dollar has helped support US corporate earnings and share prices despite stretched valuations, Hennessy says that the opportunity now lies outside the US.

“There’s no doubt that the weaker US dollar has played a central role in the broad shift away from expensive US technology and AI stocks, toward more attractively priced AI exposures across Asia, particularly China.

“In South Korea, a couple of AI-related stocks have dominated performance although corporate reforms have also helped drive a re-rating. The market’s price-to-earnings ratio has lifted from below 8 times earnings to around 10 times today.”

In addition to more attractive valuations, Hennessy says emerging market balance sheets are in stronger shape than many developed economies, while government debt as a proportion of GDP is generally lower compared to some major global economies.

Inflation trends have also improved, with several emerging economies able to bring inflation under control and begin cutting interest rates, which has supported domestic growth and equity markets. An extended conflict in the Middle East would alter that outcome.

“There’s a combination of factors that have helped drive equities performance in emerging markets, and we believe the improvements we saw last year broadly remain in place,” Hennessy says.

“While the near term will be challenging, from a strategic asset allocation perspective, we’ve increased exposure to the asset class as it offers relative value, earnings potential and better quality than it has for many years.”

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Andrew Yap

Managed accounts are on track to exceed $400 billion by the end of the decade, with technology and tighter regulation pushing the sector towards stronger, more transparent growth, Andrew Yap, head of portfolio solutions at Zenith says.

“Managed accounts are growing rapidly and becoming a more significant part of the Australian market,” Yap says.

“The most recent figures available suggest around $300 billion in assets sits within this segment, with expectations it will grow north of $400–$450 billion by 2030. That’s a very strong growth trajectory for the sector.”

Yap says technology has made the market more scalable by strengthening risk management practices, particularly with respect to monitoring portfolio exposures, factor and liquidity analysis. Together with deepened asset allocation expertise, the two factors have been vital to the sector’s expansion in a volatile global environment.

“Over the past five years in particular, technology has transformed how managed accounts are constructed. Early models relied on simple spreadsheets that were focused on high level outputs, compared to today where we use institutional-grade systems for cash-flow modelling, stress testing and scenario analysis,” Yap says.

“You can’t assess a portfolio’s durability and probability of achieving targeted objectives without an informed understanding of liquidity, factor exposures and key risks through sophisticated systems. You need to drill into the underlying holdings and understand how a portfolio would behave under stress.

“Our approach is to synthesise what’s happening in the broader market, understand what that means for asset allocation, and identify opportunities that represent our best views and the goals of our clients.

“Technology plays a key role in supporting this process, but importantly, it doesn’t replace it.”

While the sector’s rapid growth has created opportunities, it has also attracted a significant number of new entrants to the market, which Yap says investors need to be sensitive to. At the same time, developments such as ASIC’s focus on fee and performance outcomes and platform oversight have sharpened standards across the sector, which Yap welcomes.

“If managed accounts are a path that someone wants to pursue, they need to be cautious about who they partner with. With that in mind, the onus is on us as providers to help our clients understand what’s happening in the market and why they should feel confident in our approach,” Yap says.

“The regulator’s focus on fund performance, governance and conflicts of interest will hopefully lift standards across the board, which is ultimately positive for investors.”

Yap says increased scrutiny in the sector over the years ahead will separate long-term providers from the more opportunistic players, and identify those positioned to best deliver for Australian investors.

“Longevity matters in this market. Strong governance frameworks and investment infrastructure take years to build,” Yap says.

“Managed accounts are in our DNA. We’ve been operating in this space for more than 10 years, making us one of the first movers in the sector, and we’ve built a very strong platform and framework to support our clients.”

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Dugald Higgins

Responsible investing is moving beyond what has been a challenging time as the sector adopts a more pragmatic position, according to Dugald Higgins, head of responsible investment & real assets at Zenith Investment Partners.

Mr Higgins says the sector has faced a difficult period but is now showing signs of a recovery.

“After a period of what I’d describe as a spiritual recession, we are seeing responsible investment start to turn around,” Mr Higgins says.

“Returns are coming back into line with traditional funds across many asset classes. It reinforces that integrating ESG factors is about solid investment analysis and risk management, not just ideology.”

Mr Higgins says ESG has experienced a cycle of hype, political pushback, macroeconomic pressures and higher interest rates, which all impacted the sector heavily.

“We initially saw strong commitments and sometimes aspirational targets from governments and regulators, but as the conversation matures, what we are seeing now is the broader landscape evolving,” Mr Higgins says.

“In Australia, we are in a holding pattern of sorts, awaiting final rules such as the government’s sustainability fund labelling scheme and the ongoing implementation of climate reporting standards.

“But broadly, this is a sign of a market growing up, not winding down.”

Mr Higgins says despite global political noise about rolling back reporting requirements, the economic case for sustainability is clear.

“More than 70 per cent of Australia’s export partners are in jurisdictions working to implement sustainability reporting standards,” Mr Higgins says.

“Companies have invested heavily in building this capability, and investor demand for quality data on material risks isn’t going anywhere.”

Looking ahead, Mr Higgins says the future of responsible investing will be defined by resilience.

“The managers who will lead the next phase will be those who can demonstrate how their ESG expertise provides a tangible investment edge,” Mr Higgins says.

“This could be through avoiding risk, capitalising on transition opportunities, or engaging with companies to drive better returns.

“The spiritual recession was a period of correction and reflection. Coming out of it, responsible investment is stronger and more-performance oriented.”

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