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Schroders’ CIO envisions AI as the next standalone portfolio manager

5 minute read

A CIO believes her role may be obsolete in the near future as AI’s impact on the investment process continues to grow.

Schroders is already using artificial intelligence (AI) to both process information and to generate alpha in select portfolios, but its chief investment officer, Johanna Kyrklund, believes AI may soon act as a standalone portfolio manager.

Speaking at the Morningstar Investment Conference, Kyrklund explained that Schroders has its own in-house AI product, named “Genie”, which helps the asset manager drive productivity enhancements.

“We’re using it to process information, so for example, we can analyse speeches from central banks without having to read them, we can analyse them to determine whether they’re reading dovish or hawkish,” she explained.

“But we are also now running strategies which use AI to basically generate the alpha, so we have that in components of our strategies now already happening in fixed income.”

Kyrklund explained that the hunt for alpha in fixed income is done using signals generated by AI to produce exposures to certain credit markets.

“It’s basically doing the work of an analyst,” she said.

Kyrklund said she expects Schroders to shortly explore building teams around two to three portfolio managers alongside an AI entity.

“You can train AI on data that other people don’t have and data that other people don’t have is data on our own behaviours as investors within Schroders. Now we need to collect all of that and put it in a format that works,” she explained.

“The key to really use AI powerfully is you need a good data layer.”

She explained where once a manager would rely on their memory to recall what typically worked in any given environment, ideally that information could now be stored in artificial intelligence.

“Essentially, your third or fourth fund manager is basically an artificial entity,” Kyrklund said.

“It would say, analysis of all of our trading patterns shows that actually, this is what works and basically provides those behavioural nudges.

“So, might be in the end we don’t need a CIO anymore,” she said jokingly but added that she is ready for that.

Ultimately, Kyrklund believes AI will work alongside humans to enhance the investment process.

“It’s not one or the other, it’s the two working together.”

Last month, Blackstone chief executive and co-founder Stephen Schwarzman said that AI will evolve from its current IQ of around 180 to 200, to 12,000 in the next four years.

Speaking at a conference in Melbourne, he shared that regulation would be key to controlling its impact.

“It’s the first time I’ve ever seen businesspeople rooting for regulation,” he mused.

He predicted the AI revolution will eventually lead to the establishment of a global organisation, akin to the World Health Organisation or World Trade Organisation, dedicated to keeping pace with the evolving landscape of artificial intelligence.

“I was in China two weeks ago, and President Xi was saying, ‘We’ve really got to have some kind of global organisation’ for AI. He said it doesn’t do any good for some countries to regulate and others to not. He said we have to have coordination, and I think that’s widely viewed as where we’re going.”

At the moment in Australia, there is no generally applicable law regulating the use of AI; however, the government did announce earlier this year that it will adopt a risk-based framework to support the safe use of AI.

In March, a Senate select committee on adopting artificial intelligence was established to inquire into and report on the opportunities and impacts arising out of the uptake of AI technologies in Australia.

Just on Tuesday, appearing before this committee, Australian Securities and Investments Commission (ASIC) chair Joe Longo said the regulator has been running two pilot AI programs, including one to read public submissions.

“We do use AI, the first is in a pilot Commonwealth program on the use of a co-pilot and the second is using AI technology to read submissions.

“In ASIC’s world, we are often having to read and absorb submissions because we consult heavily with the market so we ran a pilot to see if the AI could ‘read’ all those submissions and come up with accurate analysis to save hundreds of hours of human time.”

The committee is expected to report to the Parliament on or before 19 September 2024.

Maja Garaca Djurdjevic

Maja Garaca Djurdjevic

Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.