Comment: More sharks and Chat GPT busters needed in the investment management tank

by | May 25, 2023

Charles White Thomson (pictured), CEO at Saxo UK, reflects on the changing face of asset management and why experience is value even in an increasingly AI preoccupied world.

It was with sadness that I see that UK fish and chip shops are now using shark meat in their offering.  The Fish and Chip Industry is a microcosm of many of the UK issues: raw product inflation feeding into the cost of living crisis (the price of white fish per kg is up 25% since 2020 according to ONS), geo political issues with tariffs on Russian fish imports, and interestingly we export the bulk of our fish but import more.

For many years now I have thought of the short seller, like a shark, as an endangered species. How concerning is this? My thinking was originally in the face of the tidal waves of quantitative easing or QE, close to 0% interest rates and the resulting hedge fund closures including York and Lansdowne.  Outperforming tracker funds in the face of this stimulus is very difficult with buy the dip as the risk management of choice.  I argued and still argue that active management, which includes long only and hedge funds, is a key part of a stable and healthy financial ecosystem. This is about balance and there is a favourable link with the overhunted and our much misunderstood sharks in the great oceans which are severely degraded and restoring these supreme creatures is key to improving the resilience of our waters.  Same for the active managers. Over the years members of the shark family have staged a small comeback and that is why some of them are destined to be battered and served with chips and vinegar. Importantly, the voice of hedge and active funds has got louder and is better suited for these challenging times, despite the negativity from a selection of our financial influencers.

We are in volatile markets which are open to further shocks, and for the time being, are without the momentum charging QE and interest rate cuts.  With this backdrop I want to use long only and hedge fund managers who have experienced more than one cycle and are not just goldilocks era investors to run part of my money.  This would include people like Charlie Munger, Warren Buffet and others based in the large asset management houses or in their own shops. It is their experience that I am looking for, and my thinking is that they are better prepared for these difficult times.  The core ingredient is their life experience which includes a variety of wins, defeats and pyrrhic victories – they are my ‘Chat GPT busters’, they are my managers whose experience has the potential to outwit AI. They have the ability to cut through the noise and harness their wisdom.  A bit like sharks, the much maligned and magnificent creatures of the ocean that have seen many of the world’s seismic changes but continue to go about their business assisted by their Ampullae of Lorenzini or electroreceptors.

This is not to say there is no place for ETFs or driverless funds in a portfolio – it should be smaller.  This could include the more rudimentary part of the strategy, for example a pure industry, one way country investment or hedge.

I am a believer in proactivity and active management.  The goldilocks era with the sense dulling free money has created lethargy and this is a potentially dangerous habit for investors in more volatile markets.  If I underperform it is because I took an active and directional call – it is not because I free wheeled into trouble and the resulting poor returns.  It is worth noting that the largest investor in the recently scuppered Signature Bank and First Republic Bank was an ETF.  These investments may be hidden within the soup of other financials, but they still lost almost all of their value.

Have faith, the Greatest and Silent Generation, the Boomers and Generation X – your experience and judgement well used is of great value as we move more into an increasingly AI preoccupied world.

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