Cover story – Artificial intelligence
One theme being covered across all media everywhere is that of artificial intelligence (AI). The Competition and Market Author- ity, a regulator, is investigating AI. Its impact is set to be as big as the industrial revolution, former government chief scientist Patrick Vallance has said, while US President Joe Biden has made it a priority to encourage big tech bosses to make AI safe. Indeed, safety concerns usually dominate conversations on AI, with much coverage often accompanied with the vision of Armageddon and the mandatory pic of Arnold Schwarzeneg- ger dressed as the Terminator to illustrate the point that AI could lead to nothing but darkness. Even the chief executive of AI specialist OpenAI, Sam Altman, acknowledged the concerns over AI during an appearance at a US Senate sub-committee hearing in May. He went as far as calling on Congress to create licensing and safety standards. OpenAI is the company behind ChatGPT – an advanced AI chatbot which can make human-like conversation. It is a bad day when one of your own innovators questions the validity of what is happening in the AI space. But there is another narrative, albeit one that is drowned out by the noise around the dangers of such an innovation: one in which AI contributes to the overall good, providing a pathway to progress and offering numerous benefits along the way. To get to grips with AI, Martha Lane Fox, a technology guru and president of the British Chamber of Commerce, calls for more understanding on the impact and importance of AI. “You need to get educated about it as an individual. Whether you are a business leader, investor, work in a charity or in the public sector, it is going to impact how you do your job,” she says.
Three stages
This raises big questions about what it could mean for the investment industry. Given its prevalence everywhere else, it is not surprising AI is being discussed in such an arena. And it seems, on an initial view, that asset owners find AI appealing. That is if a CFA Institute Investor Trust Study is a suitable guide. This found that 84% of institutional investors want to invest in funds that use AI and a similarly high level (78%) believe that the use of AI in investment decision-making will lead to better investor outcomes. This appears a pretty une- quivocal endorsement of AI from investors. But this is far from the full story. Although investors are posi- tive about AI, how they are approaching it
is far more
complex. Larry Cao, senior director of research at the CFA Institute, reveals that further surveys give a more in-depth look at how investors are embracing AI. Or rather, how they are not. “We believe AI adoption amongst investors is a progression,” he says. “There are those not doing anything on it. That bucket accounts for about 30% to 50%.”
18 | portfolio institutional | June 2023 | Issue 124
We believe we are in the springtime for AI and looking forward to an impactful summer.
Robbie Henderson, Newton Investment Management
This indicates that while investors find AI appealing, the level of commitment is open to question. In fact, Cao highlights the three stages of AI adoption that investors are following. The first is at an early stage: when investors are doing some- thing, say within one geographic area or one functional department.
The second, a more intermediate stage, is more sophisticated: one where investors have a more strategic approach to the issue of AI, while using a greater co-ordination between invest- ment functions.
Then there is the more advanced stage, where all investment functions, strategies and geographies are using AI. “We see few [investors] in the advanced stage,” Cao says. “We also see few in the intermediate stage. In total, for both we are talking about 20% [of investors].” When looked at in this way, AI presents an option for a small number of investors. With most investors sitting within the experimentation phase of AI, this probably should not be a surprise, given it is such a new technology. Explaining what is happening here further, Cao adds: “A large number are experimenting with AI in differ- ent ways. That is where the bulk of investment organisations are, making a chunk of about 40% to 50%. We do see numbers inching up, but it is a gradual process.”
Different beasts
Endorsing this picture of a gradual growing interest, Federico Invernizzi, chief operating officer at AI specialist MDOTM, says asset owners are showing an interest in AI, but have par- ticular requirements. “It is a little different, given that they are a different beast from an asset manager,” he says.
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