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How one of the biggest investors in the world uses AI to move slower, trade less, and make more money

Matt Turner   

How one of the biggest investors in the world uses AI to move slower, trade less, and make more money
  • Norges Bank Investment Management manages more than $1 trillion.
  • A top portfolio manager there just revealed how it's using AI to generate superior returns.

Wall Street firms are racing to use AI, hoping the technology can help them move quicker, save costs, and gain an edge.

On the other side of the Atlantic, the investment giant Norges Bank Investment Management is using AI to slow down.

The Norwegian oil fund manages around $1.3 trillion, and says it's the largest single owner in the world's stock markets, with holdings in more than 9,000 companies. In a recent video, Jon Egil Strand, a portfolio manager in Equity Trading and Transition, explained how AI is "already changing fundamentally" the way the fund trades.

Strand's team is responsible for investing inflows into the fund into stocks, buying a little bit of everything with the goal of getting broad exposure to the market. With the fund receiving record inflows in recent years, that makes for a lot of buying.

"So when we evaluated ourselves, and asked the simply question, are we good? Are we really good at doing our jobs here? It was a little inconvenient to realize that, you know what, we're not," Strand says in the video.

In response, the fund built an AI tool to assess every single stock in the portfolio, centered on the question: "Is this a good stock for my portfolio in the short term?"

The tool takes things like valuation, margins, revenue, trading volume, and volatility into account, and gives each stock a score, with the best stocks to buy in green, and the worst in red.

Because NBIM will end up buying a bit of everything, it's guaranteed to buy both the stocks in green and the stocks in red. But Strand's team is able to use the AI tool to decide on the timing of each buy, prioritizing buying the stocks in green, and buying the stocks in red a little bit later.

"That has generated meaningful P&L for us," Strand said.

The tool also allows NBIM to tackle a second challenge.

"We're such a big investor, when we go out in the market, we push prices. We buy too fast, we push the price up. If we sell too fast, we push the price down. It's a significant cost for us," Strand explains.

Just as NBIM uses the tool to buy certain stocks first, and certain stocks last, it uses the tool to decide which stocks to buy more slowly, which are those stocks in the middle that matter least to NBIM's performance.

"Many institutions, many funds, many players, hedge funds, will use AI and machine to speed up. We use it slow down," Strand says. "I don't want to play that speed game. I want to play our game, where we start with our needs, our characteristics, what makes sense for us."

You can watch the full video below.



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