Artificial intelligence (AI), as described by Nicolai Tangen, the head of Norway’s colossal $1.4tn oil fund, is akin to embarking on a journey into space – both thrilling and unsettling. Tangen draws a parallel with the Apollo 11 mission, aiming for a safe return, rather than the tragic fate of Challenger. While this metaphor may appear fanciful, the Norwegian fund stands as a trailblazer among major traditional investors for candidly voicing its perspectives on AI. It doesn’t just contemplate the equilibrium between AI’s risks and opportunities but also prescribes what it believes the companies it invests in should practice. As AI’s significance burgeons, the oil fund’s stance becomes increasingly consequential.
Last month, the fund presented its initial thoughts on the responsible utilization of AI by companies, a matter of growing importance for them and other investors due to the extraordinary success of a handful of firms, partly attributed to AI. Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, constituting a mere fraction of the 9,000-plus companies within the fund’s portfolio, account for 12 percent of its assets. In the first half of the year, these seven entities contributed to one-third of the fund’s returns. This concentration raises concerns, even though the fund operates primarily as an index investor, offering limited intervention opportunities.
Instead, the fund seeks to leverage its substantial influence – it typically owns approximately 1.5 percent of every publicly traded company globally – to enhance AI deployment across its investments, focusing on three key aspects.
Firstly, it emphasizes the importance of boards assuming accountability for the responsible development and application of AI. Tangen is unequivocal in his assessment, asserting that “boards are absolutely not on top of this.” Given the historical difficulties companies have encountered in securing expertise in cybersecurity, the challenge posed by AI is expected to be even more formidable. The oil fund is prepared to cast its vote against those entities that fail to act.
The second facet revolves around transparency in disclosing how companies employ AI and elucidating the design and testing processes of these systems. Beyond the technology sector, the fund closely monitors industries employing AI in consumer-centric domains such as healthcare, finance, and consumer goods.
Lastly, the fund emphasizes the need for robust risk management. It advocates that companies should take a proactive approach by seeking external verification and auditing of their AI systems and risk management procedures. According to Carine Smith Ihenacho, the fund’s Chief Governance and Compliance Officer, companies currently fall short in all three areas. She also voices concerns about AI’s potential far-reaching implications on democracy and market functionality.
Central to the fund’s agenda is a call for government regulation in the AI sector. While tech firms discuss the possibility of self-regulation, Tangen contends that they are unlikely to relinquish significant revenue streams voluntarily, necessitating government intervention.
The fund’s demands may seem broad and idealistic, especially when it comes to global regulation, but it is imperative for investor perspectives to be considered as AI continues its pervasive integration into various facets of the economy. By articulating its views unequivocally, the oil fund gains the ability to hold errant companies accountable at annual meetings, as it already does regarding other matters such as executive compensation and corporate governance.
Nevertheless, the fund’s interest in AI extends beyond its role as an investor. Tangen envisions utilizing the technology to significantly enhance trading efficiency and internal productivity. By deploying AI to reduce the time spent on mundane tasks, Tangen has set a goal of increasing internal productivity by 10 percent – an arbitrary figure he candidly admits to. AI is also optimizing trading processes by reducing costs and the frequency of buying and selling. It assists in determining optimal trading times and eliminates practices that involve rapid buying and selling due to portfolio rebalancing needs.
Tangen exudes optimism, asserting, “If you don’t think there are opportunities with AI, then in my mind you are a complete moron.” However, to avoid a crash-landing in the realm of AI, Norway’s oil fund and other investors must remain vigilant about potential pitfalls.
