The AI disruption coming for CIOs #NewsMarket

Hi! Me again, filling in while my esteemed colleague Harriet Agnew seeks a little autumn sunshine, of which I’m definitely not jealous at all. No, it’s fine, really. My own little stream of consciousness on the asset management industry this week spans AI, CIOs and the CIA, and some OATs for good luck, so if alphabet soup is your thing, read on.

One thing to start . . . 

“Our strategy is ambitious, and our strategy is working,” BlackRock CEO Larry Fink said of the asset manager’s earnings on Friday. It’s hard to argue. Assets under management surged to an all-time high of $11.5tn last quarter, reflecting a rally in markets but also record inflows of new cash from investors, which helped push revenues up 15 per cent to $5.2bn, surpassing analysts’ expectations.

In today’s newsletter:

• CIOs, coming to a desktop near you

• Super diligent due diligence

• Le spread

The AI disruption coming for CIOs

Fund managers are generally very good at talking about artificial intelligence as an investment theme. At the drop of the hat, asset management executives and portfolio managers can rattle off a list of industries and functions ripe for robotic disruption. The same people are, however, generally pretty bad at articulating how it will affect them. “Er, I think the customer service department uses it?”

One intriguing application of the newfangled technology comes from German investment house DWS and its chief investment officer, Björn Jesch.

Jesch is a cheerful soul, which he puts down to being from Düsseldorf. I did not previously know this city had a reputation as Germany’s Fun Central but every day’s a school day. For all his cheerfulness, though, he can’t be in more than one place at once. He posts his daily markets notes on LinkedIn, he writes the outlook pieces, he talks to colleagues and clients, and puts up with annoying phone calls from journalists like me seeking to figure out the state of stocks and bonds. Now, he says, AI is going to help him be everywhere all the time.

He tells me DWS is launching a podcast, in his voice, talking about markets, but without him having to make a recording. Instead, AI will “read” his daily CIO notes in his voice, first of all in English and later in other languages too. Further down the line, another possibility is a desktop avatar in his image so staff in, say, a meeting with clients, can see and hear an image of Jesch talking about his outlook for the Fed or for European stocks, or whatever. Again, this would draw on his written work. Desktop CIOs are an interesting concept, like Clippy figured out that yields go up when prices go down and developed a view on the European Central Bank’s reaction function.

This all reminds me of a question that bugs me sometimes: What are CIOs for? I don’t mean this rudely — in my experience they are almost always insightful, interesting and generous with their time. But it’s striking that at some firms, they chair the investment committee and their view is the house view — if you disagree, you know where the door is. Sometimes they are there for challenge and input, but their key function is as a public face — portfolio managers are left to their own devices to make their own decisions. Some are more managers than markets wonks, and a few firms don’t have a CIO at all. It’s a really mixed bag.

In any case, AI disruption raises the possibility of threading CIOs’ thoughts through organisations in a new way. I’ll be interested to know how clients and colleagues react.

Enhanced interrogation, fund manager style

From AI CIOs to the CIA. Bear with me.

I had an interesting morning last week at the FT’s direct neighbour to the west of its London HQ, Fidelity International. (We could genuinely wave at each other through the windows but we don’t because that would be weird.)

The event was focused on UK equities and marked the 30th anniversary of the launch of the Fidelity Special Values investment trust. Oasis, Blur, UK investment trusts . . . it was all going on three decades ago, I remember those heady days. Golden years.

As part of the discussion, Alex Wrightwho has been running the trust for the past 12 years, spoke about the extensive due diligence he performs on companies before he brings them in to his portfolio. He talks to management, but he also talks to competitors, to suppliers, to customers, to try and get a more holistic view and to cut through the polished presentation skills of the bigger companies.

And where does he develop the tricks of the trade in getting answers? Why, from the CIA of course. He has taken training from former CIA agents who know, as he put it, “how to ask the right questions”. They sure do. He declined to give further details, claiming this was the “secret sauce”.

White noise? Bright lights? I’m guessing not but will keep a closer eye on our neighbour just in case. If you’ve had this training and you have looser lips, or if you’re a CFO who really can’t remember what happened in a weird afternoon around St Paul’s, I’d love to know more so drop me a line: [email protected]

Chart of the week: Mind le gap

Bond fund managers are getting jittery about France, as our new senior markets correspondent Ian Smith writes. (Ian is fresh from the insurance beat and I’m sure he’d love to hear from you: [email protected].)

The yield on France’s 10-year bonds (known as OATs) now stands at more than 3 per cent, above Spain’s for the first time since the 2008 crisis. A proposed Budget from new prime minister Michel Barnier has not succeeded in soothing anxiety about the county’s fiscal trajectory.

“Bottom line, OATs are still not floating our boat,” said analysts at Barclays.

The gap in yields between French and German bonds, or spread in the market parlance, is the key thing to watch for signs of growing anxiety, as Ian illustrates here.

Five unmissable stories this week

UK investors are really loosening up over corporate remuneration. The Investment Associationa trade body representing 250 big investors with over £9tn in assets, has “simplified” its remuneration guidelines to enable UK-listed companies to flash more cash at top execs.

Ares Management has agreed to pay up to $5.2bn to buy the international arm of real estate investment manager GLP Capital Partnersin one of the largest combinations in the private investment industry in recent years.

On a similar note, BlackRock has emerged as a potential buyer of private credit specialist HPS. One person familiar with the talks called it a “giant AUM land grab” by BlackRock in alternative assets.

FT Alphaville’s Bryce Elder poses the big question: Can a crypto ETF die of apathy? Only one way to find out . . . 

A counterweight to the argument that higher UK capital gains taxes would be the end of the world, from an unusual source: General Atlantic‘s chief executive Bill Ford.

And finally

By the time you read this, I will have topped up my (extremely depleted) culture vulture credentials with a trip to the Frieze art fair with my now alarmingly grown-up Kid A, who is on an art foundation course and clearly didn’t get her arty abilities from me. I kind of love Frieze because it’s not a museum, as such, and stepping out of that setting strips muppets like me of a comfort blanket. I end up looking at stuff and thinking “is this crap? Is it good? I have no idea”. I like to think that’s a healthy process rather than evidence that I’m a woeful philistine, but no doubt Kid A will tell me otherwise and then demand that I take her out for dinner.

Have a good week.