A year on from the ChatGPT revolution, the $200bn Future Fund is still on the sidelines of the AI revolution, as it weighs up how the technology might transform the global economy.
“There’s a wide market for the impact of this technology on productivity,” Future Fund chief investment officer Ben Samild tells The Australian. “It will change the way we interact with each other and potentially have a big impact on the economy.”
If the $205bn sovereign wealth fund takes a view on the macroeconomic impact of the technology that has boosted the US share market over the past year, he sees many ways it can exploit it.
Mr Samild will participate in Friday’s macro panel at the prestigious Sohn Hearts & Minds conference, along with Sheila Patel, the vice-chair of B Capital Group and former chair of Goldman Sachs Asset Management, and Atul Lele, senior portfolio strategist at Bridgewater Associates. Many investors now believe AI will unleash a “1990s-style productivity boom”.
Goldman Sachs predicts AI will start having a measurable impact on US GDP in 2027 and begin affecting growth in other economies around the world in the years that follow.
That is based on its finding that AI could ultimately automate about 25 per cent of labour tasks in advanced economies and 10-20 per cent of work in emerging economies.
AI will lift US productivity growth by 1.5 percentage points annually, assuming widespread adoption over a 10-year period, with similar effects in other advanced economies, the US bank says.
There are alternative views that AI might drag on productivity by narrowing the skills base, and threatening cognitive development and people’s ability to distinguish truth from falsity.
But if the Future Fund does come to a view that AI enhances productivity, it will influence its long-term outlook for nominal and real interest rates and inflation.
“That impacts on valuations, which sectors we might go into, whether we like – at a high level – investments like data centres versus something more traditional, like infrastructure,” Mr Samild said.
Just who captures the potential gains from AI is now a key question on his mind.
That will affect the fund’s thinking on whether it needs to be involved at the venture capital disruption level, or whether it backs the “mega-tech monopolies” in a situation where AI “just perpetuates the current trend of the “monopolisation of the economy” by the tech giants.
The so-called Magnificent Seven US tech companies already make up over 30 per cent of the S&P 500.
They have contributed nearly all of its year-to-date gain of around 17 per cent.
The combined weight of these companies is now greater than that of any of the top seven companies in the S&P 500 Index since before the turn of the 21st century, according to BlackRock.
“It’s not clear to us that we have to be first in this thing and in any case we still have exposure to it,” Mr Samild said. “If it’s this huge productivity boost that keeps inflation down, keeps interest rates pinned and it’s great for corporate profits, well that will be incredibly helpful to our portfolio.
“But if it requires a mountain of spending, leaves a whole lot of skilled people without employment needing to retrain, and undermines government income, then it’s contributing massively to inflation, hurting the fiscal position of governments, and you can imagine interest rates going up further.
“That would be terrible for us.
“Either way, we own a global portfolio and we have to steer it gently.”
‘There’s a wide market for the impact of this technology on productivity’
Ben Samild, Future Fund CIO
As for how much of the Magnificent Seven the Future Fund wants to own, Mr Samild points out that it already has exposure via active managers who can have concentrated positions in those stocks, as well as hedge funds that can do the same, and also run short positions.
But it can also benefit from second and third derivative impacts, particularly via increased demand for data centres, and clean energy, both of which have been very profitable for the Future Fund.
“We think the impact of AI will be pervasive, and anything that is pervasive seeps right through the value chain,” Mr Samild added.
“There are multiple ways to invest … they won’t be equally attractive at every point and parts of the system that need liquidity the most will tend to offer the best value.
“That’s really our function in the system – providing liquidity in places where it’s a bit harder to come by, supporting viable businesses.”
Sohn Hearts & Minds will reveal stock picks from leading investment experts all over the globe.
It was on track to have raised $60m by November, and all profits will go to medical research.
The Australian is a media partner of Sohn Hearts & Minds which will be held at the Sydney Opera House this Friday, November 17.
This article was originally posted by The Australian here.
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