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    Asset Managers’ Take on AI, Post-Davos

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    NordSIP (Stockholm) – Artificial intelligence was unquestionably a hot topic during the 2024 edition of the World Economic Forum (WEF) summit in Davos last week. With more than 30 scheduled events about AI, the business and political leaders gathered in the Swiss resort had plenty of opportunities to reflect on the various ways the new technology is affecting the economy and society at large. Despite the prevailing enthusiasm, most of the conversations on this dominant theme acknowledged AI not just for its immense potential, but also for the inevitable risks it poses.

    To understand how all the AI discussions reverberate through the asset management community, NordSIP reached out across our network of investment professionals. Whether they attended the event in person or followed the debates from a distance, many were eager to share their perspectives on the various ways this fascinating new technology is changing the world.

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    At Davos, AI optimism prevails

    Eirik Winter, BNP Paribas

    “Indeed, besides geopolitics and the global economy, AI was at the forefront during this year’s conference in Davos,” confirms Eirik Winter, CEO of BNP Paribas Group in the Nordics. He sounds impressed by the level of the discussions, featuring iconic figures in the field such as Sam Altman, the CEO of OpenAI, and Microsoft’s CEO Satya Nadella. Winter also shares that he perceived a notable shift towards a more positive reception of AI and the opportunities it is expected to create for businesses and individuals. “The risks were also discussed in Davos, but somehow, net-net, the opportunities overshadowed the downside,” he adds.

     

    Eszter Vitorino Fuleky, Van Lanschot Kempen

    “Major advancements in AI have been among the highlights of last year, so it makes sense that the theme dominated the agenda of WEF,” says Eszter Vitorino, Lead Expert, Sustainability Advisory at Van Lanschot Kempen. “Since it is a qualitative step away from how we’ve been doing things, it offers itself as a tool that can accelerate the transition by reducing inefficiencies and increasing content expertise across a range of disciplines.”

     

     

    Ingrid Kukuljan, Federated Hermes

    Ingrid Kukuljan, Head of Impact & Sustainable Investing at Federated Hermes Limited, notes that there is a mixture of excitement and fear around the accelerating evolution of AI. “Like any new technology, we believe AI will be a disruptor in the truest sense, bringing both positive and negative impacts for society and the global economy,” reflects Kukuljan. “Fears concerning the risks created by uncontrolled development of AI are understandable, however, they should not obscure the huge societal benefits the technology can offer.”

    AI to power sustainability

    Charlotte Månsson, BlackRock

    Just as Winter observed in Davos, most of the asset managers we talk to sound excited about the promise of sustainable gains that the new technology offers. “AI has the potential to support transformational climate solutions,” says Charlotte Mansson, BlackRock’s Head of Sustainable and Transition Solutions for the Nordics and the Netherlands. “To name but a few examples, renewable energy systems’ efficiency and reliability can be improved by AI models that predict energy demand, optimize grid operations, and integrate renewable energy sources seamlessly,” she explains. “Agri-food systems can be optimized with AI – predicting the best planting times, assessing crop health and monitoring pest outbreaks. And as extreme weather events unfold with more frequency and intensity, weather prediction models provide more accurate forecasting and early warning systems about impending disasters.”

    Steven Smith, Capital Group

    Steven Smith, Equity Investment Director at Capital Group, shares Mansson’s optimistic view. “Overall, we expect generative AI to be broadly positive for a number of key global sustainability objectives, including access to information and essential services such as financial planning, education and health care,” he says. “From an environmental perspective, AI could lead to enhancements in areas such as climate modelling, pollution tracking and natural disaster predictions, leading to better proactive mitigation practices.”

    Investment opportunities galore

    According to the asset managers, the unfolding AI revolution provides plenty of investment opportunities for those looking in the right places. “There are certainly sectors that can harvest efficiency gains with the correct use of AI, like in healthcare, the automotive industry or media & telecommunications. AI is likely to be a real game-changer in these areas,” asserts Vitorino.

    The healthcare sector is also one of the areas where Federated Hermes sees clear potential for AI to deliver a positive impact. “Take digitally driven drug discovery, for instance,” says Kukuljan. “It will benefit society by unlocking solutions to the most intractable problems in pharmaceutical research. Using the power of AI and big data in this way also holds the promise of reducing the cost of drugs, thereby increasing access for all. We see massive potential in AI-powered drug discovery and believe investors have yet to wake up to the full scale of the opportunity,” she adds.

    Smith points out the opportunity in companies enabling the AI revolution by providing the necessary computational processing power, such as select semiconductor and semiconductor equipment manufacturers. “The other area where we see opportunity is what we call infrastructure. These are the public cloud hyperscalers providing the plumbing infrastructure on which most AI workloads will run.  These could prove interesting investments now and in the medium term,” he adds.

    Transforming asset management

    Apart from investment opportunities, AI seems to be invading the asset management industry itself, transforming the way business is conducted.

    Frank Amato, Federated Hermes

    “Asset managers the world over are finding ever new and unique ways of embedding the power of AI into their processes to extract hidden alpha, to improve their customer experience and to win new business,” says Frank Amato, Director of Advanced Analytics & Business Intelligence at Federated Hermes. “And unlike other industries, in financial services, we are only at the very beginning of the journey.”

    BNP Paribas is one of the asset managers trying to stay on top of this rapidly evolving technology. “We are utilizing AI in a number of areas and stay very close to the development of it in order to serve our clients even better, while at the same time keeping a close eye on the associated risks,” says Winter.

    Apply with caution

    According to Vitorino, the managers at Van Lanschot Kempen, who welcome the opportunities offered by AI, are looking to apply it responsibly. “AI can certainly be of great help with everyday tasks, such as background research, thereby enabling us to focus on more strategic activities,” she says. “That said, as an active investor with high conviction names in our portfolios and deep industry expertise, AI cannot replace the qualitative assessments our colleagues are doing.”

    Smith, too, cautions that there is currently a lot of hype around AI. “For AI to become ‘artificial general intelligence’ as opposed to just ‘artificial narrow intelligence’, which is what it currently is today, AI models will need to overcome the data challenge and gain access to data sets over and above publicly available internet data,” he explains. “ChatGPT, for example, was only trained on publicly available internet data. For these models to have more widespread use and applications going forward, they will need access to financial data, healthcare data, and personal proprietary fragmented data that is currently hard to access and hard to replicate,” he concludes.

    “We mustn’t forget that AI is a tool and not an end in itself,” reminds Vitorino. “Our decision-making needs to be – more than ever – intention-driven, and data-assisted. We cannot outsource the responsibility for medical advice, self-driving cars, or fake news to generative AI.”

    What should we watch out for?

    According to Winter, disinformation and cybersecurity remain the biggest challenges surrounding AI. “We need to make sure that all of these tools are utilized in a safe way,” he urges.

    Christine Chow, UBS

    Christine Chow, UBS’s incoming Head of Active Ownership, shares Winter’s opinion that these two social issues are the most urgent to address right now. “Our personal profile, whether we like it or not, is already available somewhere. We leave traces, and our preferences are exposed,” she says. “AI would know how to push our buttons and use disinformation in situations like elections. This has been going on for years, we know that, but I think it will be much easier now with generative technologies because they know how to talk to us.”

    Another sustainability concern that Chow points out is the environmental footprint of training customised AI. “Although big tech that dominates the training of foundational AI has committed to net zero and in our engagement, we know the biggest demand for green steel and renewable energy as a combo comes from data centres and big tech, businesses still use energy to customise AI for their own use and require training. We need to get a better handle on the environmental impact of AI training,” she says.

    There is more. “The uneven access to AI – and therefore inequitable use of it – can further increase the global economic inequalities,” points out Vitorino. “However, it can also help close the gap, if used well. The impact on the job market, the spread of fake news, bias and discrimination in AI models or AI-powered tools are just some of the major issues we need to be conscious of.”

    Welcome to the future

    Despite the inherent risks and growing pains, asset managers’ fascination with this exciting new technology is palpable. “What’s remarkable is the speed at which innovation is taking place,” says Amato. “What’s true about AI and its applications today is very unlikely to be true tomorrow. What we can say with some certainty is that future generations will look back at the developments happening now – and, rightly, they will view the outcomes as a seismic change from what went before. From a philosophical point of view, you might ask a broader question: is technology developing faster than humanity’s wisdom and ability to use it.”

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