Artificial intelligence – Cover story
He then lists asset owner requirement in regard to AI. “They are more interested in portfolio analytics, asset allocation and funds selection, which AI can assist with, but, of course, it needs customisation and you need to understand it is not about adding AI per se but more what they are trying to solve.” There are other points of focus for asset owners. “Typically, you end up looking at longer time horizons, fewer asset classes and a little more alternative assets,” Invernizzi says. “So it changes a little from the point of view of asset owners [versus asset managers]. But yes, there is a lot of interest from asset owners.” Lorenzo Saa, chief sustainability officer at Clarity AI, a sustain- ability AI platform, agrees, saying that asset owners are show- ing a “cautious excitement” towards AI. “We have a client base of asset owners who are certainly keen to leverage the power of AI,” he adds. “They often come to us with a desire to know more about how our team of experts – data scientists and sus- tainability experts – work not just with the AI, but as the mas- ters of the AI, those who are in charge of it.”
Net zero
In his discussions with asset owners, one example he has seen resonate is around the use of Natural Language Processing, or NLP. This is used by Clarity AI to measure the quality of net- zero transition plans at scale in an automated fashion by iden- tifying whether they contain all the necessary elements. This effectively allows asset owners to scale the evaluation of transi- tion plans across entire portfolios and for a better forward look- ing view of how their holdings are likely to perform in the future. Returning to the three stages of progress in AI, Cao believes the intermediate stage could prove to be the most popular option for investors going forward. “This means investors use AI in some of their core functions, and correlation across func- tions across business units and geographies.” But this does not mean AI will be rejected – far from it. “AI will be a differentiator,” Cao says.
The benefits in differentiation may well present themselves more to asset managers, than asset owners, says Axel Maier, a partner at MDOTM. “Financial institutions that can suc- cessfully leverage this new technology and platforms will be more likely to grow their market share, launch new innova- tive products and enhance the results they deliver to final cli- ents,” he adds. But like much of AI, the differentiator picture it is not a simple trajectory of success. “As AI progresses, there will be winners and losers,” Cao says. “The winning organisations will be those that fully embrace AI plus human intelligence (HI). You need the investment expertise and then use AI to scale it up. This is therefore not using AI to take over the investment world.”
Digital transformation is the hottest topic when speaking with business leaders in any industry, and this is no different with pensions.
Neil Mason, Surrey Pension Fund AI meets HI
This is a crucial point. One in which AI works best when com- bined with HI: the best, essentially of man and machine. “The winning organisations will be a smaller number but will focus on that split between AI and HI,” Cao says. When I ask what AI offers asset owners, Lorenzo Saa has a sim- ilar logic mix of AI and HI in his outlook. “Think about it like chess. AI beats humans, but AI plus humans beats AI,” he says. “The reasons the two are better together is that there is certainly a competitive advantage to using advanced technology to gain efficiency and scale, but using AI alone would limit the ability to strategically predict what will happen in the future.” Working on this theme, Saa adds: “Thinking many, many moves ahead is something AI plus humans will win at when pitted against AI alone. Future-forward thinking is exactly how asset owners invest for the long-term,” he says. “That’s how our team of data scientists and sustainability experts are designing our solutions and thinking about the long-term.” There is a responsibility to look at how the here and now affects the long-term, Saa says. “Not using AI doesn’t make sense, but again, not using AI plus humans really doesn’t make sense. “Asset owners, and everyone else, should want and get the ben- efit from the best of both worlds – and that’s in the combina- tion of AI, governed by humans.”
Issue 124 June 2023 | portfolio institutional | 19
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