A fund manager says AI should help drive more efficiency and improve companies’ performance. But with so many variables, the value of a fund manager having a direct, human connection to companies and their decision-makers will only increase

It hopefully won’t have escaped your attention that we (Nikko AM) have recently launched a new campaign to promote our GoalsGetter robo-advice investment platform, based around the concept of ‘onto it investment’.

Despite being one of the first of its kind, we launched GoalsGetter back in early 2019 not so much as a disruptor, but as a vehicle to help us reach beyond our core wholesale and institutional investment clients to support an emerging generation of retail and KiwiSaver investors. Although only four years ago, this was a very different technological environment. ‘Robo’ back then described a level of automation rather than open source artificial intelligence – and we deliberately built the robo functionality to provide guidance on fund selection, which could be backed by access to the manual expertise provided by experienced, human active fund managers.

The ability to support inexperienced investors with tailored strategies and actively-managed funds felt like an important step in democratising access to the investment market. Even as we enter this brave new world of generative AI, we continue to see the ‘robos’ as only part of investor’s toolkit – helping to enhance rather than replace the work of active fund managers in this regard.

One of the most obvious enhancements the new tech brings is speed, significantly reducing the amount of time it takes to research, compile and summarise company information and economic data. But it has its limitations.

ChatGPT – at this early stage at least – is essentially an aggregator, therefore the quality of its output is wholly dependent on the information that is publicly available. And in a somewhat delicious irony given its futuristic theme, it is limited to seeing the world as it is today, or rather how it was yesterday, not as it can be tomorrow. An active fund manager, on the other hand, will have the opportunity to talk directly with a company’s CEO and assimilate fact with nuance and ambition to get a fuller picture of its direction and prospects.

The clearest example of the importance of this is when it comes to evaluating a company’s ESG outlook. Let’s say a company currently has what might be deemed by today’s standards too great an exposure to carbon emissions, but its board and executive have a clear vision to transition away from these exposures to become a leader in clean energy use. The AI view of this company on its own will be very different to that of the fund manager who has had the opportunity to sit down and chat with the leadership team about their vision, and importantly their chances of success.

That’s not to say that fund managers know, or gets to know, everything! The GPT model amasses and interprets data in a different way to how a human might – which can be helpful for identifying blind spots and elements we might not have previously considered. As the tool becomes more prevalent, it may also encourage companies to respond by publishing more information to enjoy greater visibility – a kind of Data Optimisation as a new generation of Search Engine Optimisation – which can only be a good thing.

For our industry, the comparison of this new age of AI to the dawn of the age of the internet is a valid one. Fund managers are constantly making decisions and have been doing this since long before the internet came along. The same principles of validating decision-making through experience, expertise and intuition based on long-term objectives have applied throughout technological change – it’s just the immediacy and breadth of information available that has evolved.

For investors themselves, one key area in which the new tech will help is in the much-vaunted democratisation stakes, improving their understanding of how the markets work.

If you’re only investing small amounts at a time, it’s understandable that as an investor you will seek a level of advice commensurate with the amount you are investing.  For this reason, the vast majority of everyday investors are under-advised. ChatGPT-style programmes won’t replace financial advisors, any more than they will fund managers, but where they can help is in improving financial literacy and creating a more level playing field by making it easier for ‘smaller’ investors to look before they leap.

It can also help individuals interrogate their own investor persona a bit more. Improving knowledge, confidence and awareness is an important step in enhancing investors’ ability to talk about money without embarrassment, which ultimately will lead to better decision-making and therefore better outcomes.

One thing that’s clear to us, in talking directly to New Zealand’s biggest companies, is that AI will change every company in different ways.

Everyone is talking about it, but as of yet there are not a lot of real-world examples of the kind of disruption it will bring to the markets. Which brings us back to the concept of onto it investing. We all believe that AI will help drive more efficiency and as such should improve companies’ performance. But with so many variables, and different speeds and approaches to adoption, the value of having a direct, human connection to companies and their decision-makers will only increase.

James Rogers is the chief operating officer at Nikko Asset Management New Zealand.