How AI is being used to predict bankers’ strategy

Schroders, which manages some $1.4 trillion in global assets, has developed an AI tool to analyse the speeches of central bankers around the world to see if they are hawkish or dovish. But there are risks.

Schroders chief investment officer Johanna Kyrklund.

London-based global asset manager Schroders is using artificial intelligence to help develop its investment strategy, says chief investment officer Johanna Kyrklund.

Ms Kyrklund said Schroders, which manages some $1.4 trillion in global assets, had developed its own AI tool called Genie last year.

She said the firm was using it to process information, including analysing the speeches of central bankers around the world to see if they were hawkish or dovish.

“We are also now running components of our (investment) strategies using AI to generate the answer,” she said at the Morningstar Investment Conference on Tuesday.

“We are basically using the signals generated by AI in fixed income to generate exposures to certain credit markets.”

Ms Kyrklund said it was using AI to do the work of an investment analyst.

She said the firm was exploring the possibility of having a team of two or three portfolio managers assisted by AI to make decisions on investing.

Ms Kyrklund said the advantage of having an inhouse AI tool meant that it could be trained using internal Schroders’ trading data which other people did not have.

She said this could be analysing past trading patterns to see what worked to be able to provide behavioural “nudges” on how to respond.

“It might be, in the end, we don’t need a CIO anymore,” she joked.

Ms Kyrklund said the firm was “embracing” the use of AI, including using it for basic productivity enhancements such as recording meetings and doing translations.

She said this could include having senior executives speaking in videos which show them speaking in different languages for their clients in other countries.

But she said there were dangers if people used AI to create deep fake videos and frauds.

“It can affect trust in the system,” she said.

“It is a nebulous concept, but that’s the main challenge (with AI).”

Schroders chief executive Peter Harrison said earlier this year that the firm had 80 different AI projects and was looking to use the technology for more than just cost savings.

The global fund manager was one of the first to invest in OpenAI, the Microsoft backed group behind the launch of ChatGPT in 2022.

Mr Harrison said the firm was using AI to better understand its clients and identify markets and investment patterns.

Ms Kyrklund said Schroders did not have a “house view” on its approach to investment, but she said she believed there were opportunities in global share markets outside of the US including in Japan, Europe, and the UK.

She said there were structural forces operating on economies around the world including the move to decarbonization, the aging of populations and labour shortages, and deglobalization.

She said Covid had provided a once in a generation impact on workers around the world. This combined with the aging of populations was leading to tight labour markets globally.

She said Covid had also provided an impetus for deglobalization, interrupting supply chains and reminding countries of the need to have some supplies made locally.

Ms Kyrklund said the rise in the prices of the Magnificent Seven tech stocks in the US could not be compared to the dot.com boom of the past as the big tech companies were all generating cash.

She said she felt there were opportunities in the broader US equity market where companies other than the Magnificent Seven had not seen their share price rise as strongly.