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Norway’s sovereign wealth fund, managed by Nicolai Tangen, is aggressively integrating artificial intelligence into its operations, but a recent commentary raises concerns about potential risks overshadowing the benefits.
Tangen, as reported by E24, describes himself as relentlessly focused on AI implementation, aiming to increase productivity by 20% annually. The fund is already seeing significant cost savings through improved trading strategies powered by AI.
However, a columnist for VG argues that the fund’s enthusiasm for AI may be downplaying substantial dangers, including the potential for systemic market crashes and a loss of institutional knowledge. The commentary suggests a disproportionate focus on process over tangible results.
The fund is targeting $400 million in annual savings from its $2 billion trading costs, according to a report in the Financial Times. Tangen indicated to E24 that the fund is already realizing “many billions” in savings.
The fund’s increasing reliance on AI comes as the broader financial industry rapidly adopts the technology. According to a recent IBM report, 91% of capital managers either use or plan to use AI in portfolio construction and analysis, a significant increase from 55% in 2023.
However, the VG commentary warns that widespread adoption of similar AI models could lead to “alpha decay,” where the advantage of using AI diminishes as more market participants employ the same strategies. The fund’s recent performance has shown weak or negative alpha compared to its benchmark index.
The fund manages holdings in approximately 7,200 companies worldwide, requiring analysis of vast amounts of data. Tangen has implemented the use of language models (LLMs) and electronic document review, leading to machine learning and pattern recognition in its analytical work.
Whereas AI excels at automating tasks and increasing efficiency, the VG commentary questions whether the fund is adequately considering the potential systemic risks, including the possibility of a “digital panic” triggered by AI-driven market reactions.
The fund increasingly employs personnel with technological backgrounds, according to E24, but the commentary suggests a require to balance this focus with the preservation of institutional knowledge and expertise.
