Cover story – Artificial intelligence
casting and predicting skills, compared to a human being. This, the argument goes, is particularly useful in addressing risk management.
AI also avoids the suggestibility of news cycles and market peaks and troughs. Although many institutional investors would retort they seldom are, given they furrow their own strat- egy or long-term objective.
Think about it like chess. AI beats humans, but AI plus humans beats AI.
Lorenzo Saa, Clarity AI
AI in springtime So the consensus has it that the mixture of AI and HI is central to bringing the best out of AI from an investment viewpoint. “We believe we are in the springtime for AI and looking for- ward to an impactful summer,” is how Robbie Henderson, global research analyst at Newton Investment Management, colourfully puts it.
“The deep learning paradigm shift is central to this view,” he adds. “Deep learning techniques have long held the promise of fulfilling [Alan] Turing’s desire for machines that can learn.” The two ingredients necessary in creating AI or learning machines, Henderson says, is incredible computing power and an abundance of data. “Moore’s Law [on historical trends] has driven exponential gain in computing power and continues to do so,” he adds. “In the past two years we have doubled the per- formance that was achievable. That sounds impressive, but what it really means is we have travelled as far in the past two years as we have in the previous 40.” And on the data aspect, Henderson makes a similar point. “The good news is we have lots of data. In fact, 90% of the world’s data was created in the past five years.” Altogether, on these important parts of computing and data, it highlights the speed at which the issue of AI is developing.
AI predicts
And, of course, advocates of AI, often AI companies wanting to sell their wares, along with some asset managers, are not shy in promoting its benefits. One specific point is the ability of AI to conduct thorough investment analysis gives it better fore-
20 | portfolio institutional | June 2023 | Issue 124
AI also has the ability to make a dramatic impact on ESG investing – accounting for environmental, social and govern- ance risks and opportunities in investing. And while AI can unearth key data for investors seeking sustainable invest- ments, discerning unreliable information will be a key chal- lenge, meaning humans will not be replaced any time soon. But the shadowy part of AI is never far away. Martha Lane Fox warns that the threat from AI is real and needs big oversight. “We need to think at a supra-national level about this,” she says. “Some countries will be developing this technology for nefarious purposes and could lead to a global AI arms race.” In such a scenario, the picture of Arnie as the Terminator returns, but this time, controlled by human activity. The narrative of AI taking us into some form of future hell typ- ically emanates from one place: the ethical considerations of AI, or the lack thereof. “There is a lot of research from the tech- nological side about the ethics of AI,” Cao says. “Data privacy and data governance are the major concerns.” He adds there is a simple way to avoid the problems that could emerge here. “Our view is the technology people should deal with the technology and ethics of AI, and investment profes- sionals should deal with the ethics in investments,” he says.
AI build From this, Cao says there is an important point about how investment teams need to be specifically built to deal with the challenges of AI. He says the necessary skills come in the form of so-called T-shaped skills – made up of investment, innova- tion and technology expertise – creating an environment that has investment specialists and AI specialists. “Not everyone is going to have T-shaped skills,” Cao says. “You can have specialists on the team, but overall, as a team, they need to have T-shaped skills connecting AI technology with the investment professionals.” Such a team would only need to be a “handful of individuals”, Cao says. Many of the asset owners portfolio institutional spoke to said they were looking at AI but would not comment further. This endorses Cao’s view that many institutional investors stand at the experimental stage. One that is doing so, in a little more advanced way, is the Surrey Pension Fund. Neil Mason, assistant director and local government pension scheme senior officer at the Surrey Pension Fund, points out
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