At just 15 per cent of the total CHF39 billion ($43 billion) assets under management, Switzerland’s Compenswiss doesn’t have a large allocation to private markets and no allocation to private equity at all.
It’s a source of relief for Frank Juliano, chief investment strategist and member of the executive committee, reflecting on the phrase du jour: the fact that the DPI ratio has become more important than IRR for investors navigating the lack of distributions from private assets.
“We don’t have many private assets and no private equity which is the most impacted asset class by the lack of distributions. But we see that DPI ratios are forcing investors to sell liquid assets to fulfil new commitments. They are ending up with an imbalance in their allocations and becoming overweight private assets,” he says.
Still, liquidity and flexibility are key priorities in the portfolio’s growing allocation to private credit. Initially set at 2 per cent, in 2025 Compenswiss targets 3 per cent in an allocation that includes nine funds across Europe and the US with another RFP in the market that should bring a few additional managers to the portfolio.
Compenswiss will invest in evergreen vehicles and senior corporate private credit funds (avoiding mezzanine structures) and is active in all segments from the lower-middle market to the upper-middle market. The preference for evergreen structures instead of closed end funds has become a central tenet to strategy, explains Juliano, who likes the flexibility they offer by allowing investors to increase their allocations over time or reduce if they need to, without having to select new funds or deal with capital calls or subscriptions.
“We like evergreen structures because it means we have to manage fewer capital calls and our money is faster at work unlike in closed end funds where investors have periods of underinvestment.”
In most evergreen structures, capital is locked up for two-to-three years after which withdrawal requests kick in periodically. In contrast, in drawdown vehicles, it can take three years for a fund to be fully invested, by which time investors will have to go back out and find another fund.
Juliano is not alone. Other investors say they also favour evergreen structures because they allow more detailed due diligence on the covenants and corporate loan documents in the portfolio. Enabling the process of checking that a new cohort of external mangers will deliver all they promise, and the bona fide credentials of the team behind the strategy.
Rich equity valuations
Looking out on the investment landscape he notes that rich equity valuations will most likely see the fund sell some equity towards the end of the year to rebalance the portfolio to the 2025 target (29 per cent).
Elsewhere, Compenswiss’s allocation to gold has grown from 3 per cent to 3.5 per cent this year and he believes the value will continue to climb off the back of geopolitical uncertainty and the scale of sovereign debt in developed markets. He also singles out the strong performance of the real estate allocation in Asia which is subject to different growth and interest rate cycles than western markets.
“Central business districts in Asian cities continue to attract lots of people so office hasn’t suffered like it has in the US.” In contrast, the allocation in the US and Europe is focused instead on industrials, family and data centres.
The passive allocation to large-cap emerging market equities is struggling because of China’s poor performance dragging returns, exacerbated by the growing allocation to China in the index because of the introduction of A Shares. “We plan to decrease our allocation to emerging market equities as we do not expect China to outperform in spite of the recent stimulative measures.”
In recent years, Compenswiss has also scaled back derivatives exposure apart from an FX hedging programme.
“We really only use derivatives when strictly necessary,” he says.
A debt risk hedging programme sheltered the fund from spiralling liabilities around 2017/18 and the portfolio was also hedged on the eve of the pandemic – a programme that was monetised just at the right time when the market started to go up. “It got too expensive,” he recalls. “It was like when the cost of car insurance gets more expensive than the car itself.”
Compenswiss is also overseeing the integration of AI throughout the organisation via a sweeping education programme. Everyone, at every level and in every department from investment to back office and legal, is being trained on how to use the technology to add value.
“The way you integrate AI within your firm has become very important,” he concludes.
“Over the course of four months, a member of the team coded a wonderful state-of-the-art tool to manage how we measure ESG. Nowadays, using Gen AI it would have taken maybe a couple of weeks. That’s a huge productivity gain.”
NEST, the United Kingdom’s fast-growing £45.3 billion defined contribution scheme, has warned that future returns will likely be more subdued than in the recent past. Speaking in a recent webinar, chief investment officer Liz Fernando questioned the likelihood of markets delivering extra returns over the next 5-10 years given they have seen a “phenomenal run” in recent years.
Valuations are high and interest rates are not coming down that fast because inflation remains sticky. She warned of the risk of disappointment, and cautioned against risk-on asset allocations. Meanwhile she said NEST will continue to invest for the long-term and try and ignore the short-term noise and volatility that will accompany the Trump presidency.
“Trying to make accurate predictions is a fool’s game. We learnt from his first presidency that he is erratic and doesn’t necessarily do what he says.”
Meanwhile, diversification will help safeguard NEST’s assets from bumps and volatility and the illiquidity premium from its growing allocation to private markets will boost returns. NEST targets returns at CPI+ 3 per cent and beneficiaries can choose different strategies (from five funds) based on how close they are to retirement, and their risk appetite.
Although NEST is comfortably ahead of its long-term return target, 3-5 year returns have been impacted by the spike in inflation. She said short-term returns are very strong.
Of all NEST’s five investment funds, the Sharia Fund has bagged the best returns because it is mostly invested in technology stocks and the wider equity boom given its strict exclusions. It has achieved a five-year annualised total return of 15.7 per cent compared to returns in the Higher Risk Fund of 7.5 per cent over the equivalent period.
“This has clearly been a fabulous place to invest in the last ten years,” she said. “This is the riskiest fund we offer our member.”
However, in line with her broader warning of lower returns ahead, she said the fund will now include a 30 per cent allocation to sukuk bonds that will have a market dampening effect on volatility.
“We believe anyone should be able to save for a pension, and not be excluded for [their] religion,” she said
Investing in the UK
Fernando estimated NEST will have invested around £20 billion in UK assets by the end of the decade, explaining this will grow from current levels of around £8.5 billion as NEST’s assets under management grow.
NEST’s investments in UK assets include property and infrastructure. A recent partnership with Legal & General and PGGM, which invests on behalf of Dutch pension scheme for healthcare workers PFZW, targeted £1 billion in build-to-rent schemes across the UK supporting the government’s target of delivering 1.5 million more homes.
“Through our investments we are able to get good returns and support the economic environment,” she said. NEST is about to begin publishing a quarterly summary of how it invests in the UK – just like it does with investment performance.
Referencing the growing pressure on pension funds to invest more at home from the UK government, she said that NEST only invests in members’ best financial interests.
“This is the primary lens through which we think. We will not make investments simply because we are encouraged to do so.”
Innovation
This year, innovation at the fund includes a new active, externally managed allocation to multi-thematic equities. The allocation (targeting £5 billion by 2030) focuses on developed markets and seeks to benefit from key themes influencing financial markets including natural capital.
NEST currently has around half its portfolio in listed equity funds aligned with a transition to net zero by 2050. The new allocation to thematic equities seeks to bring active investment into its climate and wider ESG ambitions.
Elsewhere, a new allocation to timberland counts as one of the most interesting and fast-evolving allocations in private markets. Launched a few months ago, investments already include forests in the US and Australia. A transaction is close to completion in New Zealand. NEST’s private markets allocations include real estate, added in 2012, private credit, added in 2019, infrastructure and renewables, added in 2021, and private equity which was included in 2022.
Fernando explained the benefits of being invested in an allocation that grows in value over time, mirroring the liability of members.
It is also possible for investors to harvest returns mid-cycle by thinning forests, and although timber fits comfortably into portfolios for beneficiaries at the early and mid-stage of their saving journey it offers valuable income and strong cash yields too. It also has the scale for NEST to maintain a consistent portfolio allocation, which is essential given the investor takes in £500 million net contributions on a monthly basis.
It also allows the investor to influence outcomes via engagement and stewardship, another key pillar to strategy that reflects its ambition to encourage real world change so that its members can retire into an attractive world
Driving hard bargains
NEST’s timber and thematic allocations saw fierce competition from asset managers – 12 managers applied to run the timberland mandate and 29 applied to run the thematic equities mandate. Fernando said the investor’s scale and growth give it an increasingly powerful negotiating advantage that ensures the best deal possible.
“We drive hard bargains with external managers so members benefit” rather than asset managers buying more “yachts and Ferraris.”
Loss of biodiversity presents specific and pressing issues for pension funds who, as universal owners, cannot just stock-pick or diversify away from a risk that ultimately affects the financial system in its entirety – all asset classes, all sectors, and all businesses – and humanity broadly.
Asset owners must consider the impact of companies they invest in on the natural environment, and the impact they have on biodiversity.
This can be viewed in the context of a narrow fiduciary duty, but it also just makes good sense for very long-term investors like pension funds that investments should be sustainable.
The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) defines the five drivers of global biodiversity loss as land use change and habitat loss; exploitation and overfishing; climate change; pollution; and invasive species and disease.
Considering the scope of these factors, “every business has an impact and also depends on” ensuring biodiversity loss is halted, and reversed wherever possible, says Pictet Asset Management (Pictet AM) investment manager, thematic equities, Viktoras Kulionis.
All that differs from company to company is “the scale of impact and the magnitude of dependence” on biodiversity, Kulionis says.
He says part of the prevailing mindset on biodiversity loss is – as with climate change – that the problems seem a long way off, even if in reality they’re happening right now.
“Sometimes it might be seen as distant or immaterial” he says.
“But those effects, they sometimes take time to play out, and in some cases they are already beginning to unfold.
“Many companies are evaluating their impacts and dependencies on nature, and the number is likely to grow with increasing awareness of biodiversity-related issues.”
A global effort
In October this year 27 pension funds controlling assets estimated at US$2.5 trillion and led by Swedish pension fund AP7, Australian super fund Hesta, Canada’s CDPQ, and the UK’s Church of England Pensions Board and Universities Superannuation Scheme, formed a coalition to encourage governments around the world to take quicker and more concerted efforts to address biodiversity loss.
The coalition has called on governments to:
- Establish ambitious national targets, nature-related transition plans and commitments to halt and reverse biodiversity loss, with a focus on transformation of key sectors, stopping deforestation, and protecting and restoring critical ecosystems.
- Develop mandatory disclosure regulations for companies with material nature-related impacts or dependencies, as well as nature-related transition plans, with metrics strongly tied to biodiversity outcomes.
- Establish and implement regulation to protect nature and biodiversity for all sectors that contribute to IPBES’ five drivers of biodiversity loss.
- Invest in the development and scaling of financial mechanisms to protect and restore nature and biodiversity.
Head of sustainability at the A$90 billion ($58 billion) Hesta, Kim Farrant, says biodiversity loss is a systemic issue, just like climate change, but in some ways is more complex to measure and address.
“They result in both a risk to the portfolio as well as to broader society,” Farrant says,
“Nature and biodiversity loss is no different, in that it’s both a threat to the environment [and to] communities that depend on it, but also presents material financial risk to companies, to shareholders and to the global economy.”
Clear and present risks
Farrant says Hesta’s definition of biodiversity captures both “biotic and abiotic elements – so, the living and the non-living parts of nature: plants and animals; but also lands, oceans, fresh water, atmosphere”.
“At a system level we can see the clear and present risks,” Farrant says.
“More broadly, we can see it by looking at things like the Planetary Boundaries. These are showing that the systemic elements of nature and biodiversity operating beyond these safe zones, and this is particularly for nature-based elements. They need to be brought back within those safe domains.”
Farrant says that as an asset owner and a fiduciary, Hesta has “an important role in safeguarding [and] helping to address a range of global challenges”.
“We do that both to support the strong long-term performance of our portfolio, and really the retirement savings of our one million members, and so we wouldn’t see really safeguarding the planet’s natural capital and biodiversity loss [as being] materially different than seeking to address climate change as a systemic risk,” she says.
The C$452 billion ($320 billion) CDQP head of sustainability Bertrand Millot says the way the fund looks at biodiversity really comes down to nature loss.
But when it comes to measurement, “we need differentiated metrics, and the goals are differentiated, and they are even differentiated by country or region”, Millot says.
“So it’s very complicated, and the idea of this [pension fund coalition] is to really think systemically. What do we need as long-term investors in order to effect change in the system so as to reduce specific and systemic risks?” he says.
Kulionis says guiding the system in the right direction is necessary to address a prevailing sentiment that biodiversity loss issues seem a long way off, even if in reality they’re happening right now.
Opportunities for engagement
Laura Hillis, director of climate and environment at the £3 billion ($4 billion) Church of England Pension Board says addressing biodiversity loss starts with “trying to understand the risk in the current portfolio, so not changing your strategic asset allocation, but just looking across asset classes and going, Okay, where are we really exposed, and thus, where are my opportunities for engagement?”.
Hills says that when one thinks about how dependent the world is economically on nature, a picture starts to emerge that if current trends continue there will be huge impacts on “lots of different countries around the world, on food, on water, on a whole range of different industries”.
“And then that’s saying nothing for the fact that it will impact communities, people, significantly and also cause kind of further social disruption, which would be expected from things like climate change and biodiversity loss,” she says.
Hillis says that as very long-term investors, pension funds must think about systemic risks both in financial terms – the impact on portfolios and investment returns – but also in terms of the world their beneficiaries will be living in when they begin to live off the fruits of their investments.
“Even if you adjust your investment strategy and say we’re going to avoid certain companies really badly impacted by climate change or nature loss, you can’t really divest away from the risk because all companies, all industries, all society ends up being impacted,” she says.
Hillis says it is “a reasonable argument” that in the long run, biodiversity loss presents significant risks to financial stability.
“People who have that long-term mindset will often go, OK, it’s not sufficient for us to just use this information to adjust our portfolio, because fundamentally we’re kind of just tinkering around the edges,” she says.
“If we do that, we actually have to think about how we address the long-term risks and try to effectively reduce that risk, which is a really difficult thing to do.”
Innovating to address losses
Pictet AM’s Kulionis says there are clear opportunities for investors to engage with companies to reduce biodiversity impact, and to encourage them to restore biodiversity where possible.
“It’s an issue we must address, and we are already seeing action being taken”, he says.
“Companies will have to innovate to address biodiversity loss, much like they have for climate change. While addressing climate change has driven significant technological advancements, biodiversity loss presents an even broader challenge that will require extensive effort and innovation.”
Kulionis says Pictet AM allocates capital to companies that it believes “help to alleviate pressures on biodiversity”, and that the asset manager is one of only a few that builds biodiversity impact models in-house.
“The reason why we do that is because we want to understand who is causing the impact, where it occurs, what drives the impact, and what can be done to address it,” he says.
“And we are trying to identify those companies that are not only least damaging, but also the ones that do provide solutions to address biodiversity loss.”
Kulionis says Pictet AM’s ReGeneration strategy. which he manages along with two colleagues, does not invest in what one might describe as “transition companies”.
“We invest in relatively clean companies, whenever there is possibility for that,” he says.
“If you think about biodiversity loss, the majority of it is driven by land use mainly for animal agriculture. Addressing this will require solutions that reduce land use, such as alternative proteins. Other key drivers, including water stress, climate change, and pollution, will also need to be tackled with technologies that mitigate their impacts to effectively address biodiversity loss.”
Four ways of addressing the issue
Millot says CDPQ thinks about biodiversity loss in four ways. The first is conservation, which it cannot address because there is presently no efficient mechanism to do so, although there may be in future.
The second part is preventing deforestation and the destruction of nature, and the third part is “investing proactively for nature”.
“This is investing in sustainable forests and sustainable land; sustainable agriculture; potentially one day mangrove forests and other restoration, if there is mechanisms to do so at a large scale,” Millot says.
“At the moment, our efforts are constrained, concentrated in forestry and sustainable land and agriculture land, where we are buying areas that are not husbanded sustainably today, and making sure that they become that way; turning land under normal agricultural practices to organic agriculture that is much better for the planet.”
Millot says CDPQ intends to allocate C$2 billion in the forest and agricultural land sectors by 2026, but “it is, to be completely transparent, not an easy area for a large investor”.
Those investments are relatively small by our scale, and a small project is the same work as a big project,” he says.
The fourth part is engaging with the companies it invests in, Millot says.
“So, engaging food companies, engaging mining [companies], engaging governments, potentially engaging industry to stop what they’re doing and do it better.
“Normal engagement efforts are more effective when the supply chain is short,” Millot said.
“In the case of agricultural and nature, supply chains are usually very, very long – even if you look at wheat in Australia or wheat in Canada, we may own an agri business company or supermarkets, but between the supermarkets and the field, there’s four, five, six different levels, and therefore the engagement weakens at each step.”
Millot says engagement on biodiversity can be complicated “but that does not stop us from doing it”.
Capital allocation
Hesta’s Farrant says the fund is seeking to halt and reverse nature loss though both engagement and capital allocation.
“A lot of the engagement that we do is around that halting loss, with companies who are already operating,” she says.
“Then, the capital allocation piece comes into more the halting, but also really into that reversing: looking for better management practices; looking for agritech to help deliver some of those solutions; looking for nature-based offsets to reverse some of that damage as well.”
Farrant says that Hesta recognises that being nature-positive isn’t an issue for just one organisation, “it’s a system-level objective, and so we recognise that everything needs to come together to achieve that halting-and-reversing of nature loss”.
Hillis says this view informs the thinking of the pension funds coalition to which CoE, Hesta, CDPQ and others belong.
“The group we’re working with collaboratively is much more focused on the more systemic view and going, OK, how could we work together to actually call out some of these risks and try and address them over time?” she says.
“There is a lot of things that you can do in terms of looking at your portfolio, a lot of things you can do in terms of engaging with companies that you own as well. But fundamentally, success really depends on getting the right policy positions into place.”
Kulionis says addressing biodiversity loss is related to but broader than addressing climate change.
“When you think about biodiversity, its scope is broader, encompassing additional environmental drivers such as land use, water stress, and pollution. And therefore, the technologies that required to address biodiversity loss are also going to cover a much broader spectrum.”
Solutions such as renewable energy, EVs, that helps to mitigate climate change will also help to address biodiversity loss, Kulionis says.
“But because biodiversity loss is caused by multiple factors, we will need a wider range of technologies to address it,” he says.
In 2024, readers embraced our in-depth analysis and Investor Profiles as we continue our quest for a deeper understanding of institutional investment best practice and driving the industry to produce better outcomes for stakeholders. Thank you to all our interview subjects, readers and supporters over the last year. Below is a look at the most popular stories of 2024.
One of our defining characteristics and main objectives at Top1000funds.com is to provide behind-the-scenes insight into the strategy and implementation of the world’s largest investors. Our access to senior investment professionals globally and our understanding of the context of their decisions is unequalled.
In 2024, we continued to deliver in-depth Investor Profiles showcasing the thinking of global CIOs, and we focused in on improving our research-based initiatives. We now have readers at asset owners from 95 countries, with combined assets of $48 trillion, and we are also pleased to say that in 2024 we significantly increased our pageviews and our user base with our readers spending more time on our site.
stories you loved
Investor profiles continue to be core to our indepth understanding of asset owners around the globe and this year readers were interested in a geographical mix including South Africa’s GEPF as it prepares for a two-pot system, staff at Ohio STRS losing their bonuses due to infighting, an interview with OMERS’ CEO on his view of the Canadian Maple 8, Japan’s GPIF as it expands its manager pool and more recently the chaos at AIMCo as politicians take control of the fund sacking the board and CEO.
When you put this latter story alongside a write-up of a session we did from our Toronto event this year where four luminaries of the Canadian system – Claude Lamoureux, Keith Ambachtsheer, Mark Wiseman and John Graham – discussed if the founding principles of the Canadian system are under attack, one wonders if this is the tip of the iceberg for the much-revered Canadian Model. You can be sure this will be on our list of stories to investigate in 2025.
In 2024 we tackled some big features, sharing with investors what their peers around the world are doing about AI, which we think is the challenge and opportunity of a lifetime for asset owners, why climate investing is so difficult, and why investment teams need to be cognitively diverse.
expanding perspectives
Our research initiatives continued to improve and expand and now include the Asset Owner Directory, the Global Pension Transparency Benchmark and the recently launched Research Hub.
The Asset Owner Directory is an interactive tool to give readers an insight into the world of global asset owners. It includes key information for the largest asset owners around the world, such as key personnel, asset allocation and performance, and also includes an archive of all the stories that have been written by Top1000funds.com allowing readers to better understand the strategy, governance and investment decisions of these important asset owners.
The Global Pension Transparency Benchmark measures and ranks the transparency of 75 asset owners from 15 countries. This year funds across the board, especially the leading funds, demonstrated vast improvement in their transparency scores. The benchmark has been the catalyst for an increased focus and marked improvement in the transparency of public disclosures by pension funds across costs, governance, performance and responsible investment. Remarkably, this year Norges Bank ranked first with a perfect score and to get there, the fund made huge gains through a concerted effort that among other things required advocating the government to make governance changes.
In 2024 we launched the Top1000funds.com Research Hub, bringing leading academic research to investors to deepen their knowledge on subjects that will broaden their perspectives on future macro-economic drivers and support better decision making.
The research hub links our events and our content with our Fiduciary Investors Symposium event series built on a close association with academia. For nearly 15 years we have been hosting the events on leading university campuses, giving delegates an immersive educational experience and challenging them to think bigger.
Now we have developed this research hub, which brings investors the academic papers written by the university professors that have been such an integral part of our programs. The research hub allows you to search academic papers and related Top1000funds.com content by name of academic or university, or by subject.
Its aim is to provide investors with deeper knowledge, based on robust data and research, on subjects that will broaden your perspective and support better decision-making.
All of our initiatives are aimed at providing a deeper understanding of best practice and driving the industry to produce better outcomes for stakeholders.
I have the pleasure of speaking with you – our global investors – every day and as I have calls with many of you at the end of the year I know it’s been a big year for many of you.
Thank you for being a reader, a delegate, sponsor or speaker, we really appreciate your engagement. And as the world gets more complex sharing your insights with your peers is invaluable.
We’re going to do it all again next year and kick off our event calendar with the Fiduciary Investors Symposium in Singapore from March 18-20.
Hope to see you there.
Until then, happy holidays.
AI can add value in almost every part of the investment process, providing support in information gathering and analysis, sometimes from non-traditional and hard-to-access data sources for portfolio management purposes, according to a new CFA Institute Research and Policy Center report.
The report, titled Pensions in the Age of Artificial Intelligence, combed through selected academic literature and outlined the potential for AI enhancements up and down the pension value chain. It highlights to asset owners how AI can be used to modernise their operations as well as problems that may arise.
The report highlighted AI and machine learning (ML) as useful tools to increase the accuracy of manager selection and review for asset owners, using a case study from Japan’s Government Pension Investment Fund (GPIF).
GPIF, the world’s largest asset owner, uses a variety of external managers whose performance has been uneven over the past decade. It relied on a small number of internal human experts to select and evaluate active managers, but in 2017, GPIF trialled a multi-stage program to better identify and assess manager styles using techniques like deep learning.
“…An AI system would allow GPIF to more thoroughly, accurately, and efficiently evaluate fund manager investment style, providing quantitative metrics for what was previously available only as qualitative fund management descriptions,” the CFA Institute report said.
“These technologies demonstrate the potential for GPIF to access the benefits of a wider array of asset managers and funds by relying on internal data-driven analyses to judge fund manager performance, rather than relying on qualitative descriptions of performance or policies.
“This can serve to eliminate bias against fund managers with a history of working with GPIF and larger firms who are better placed to market their products.”
Information gathering and analysis is one of the most common ways asset owners are using AI, even from unconventional data sources when using programs like natural language processing (NLP) and “increase the range of information available”, the report said.
For example, NLP can screen earnings call transcripts and identify changes in company positioning, while sentiment analysis can be used to predict market and investor reactions to company events.
Similarly, AI can be used to scan and formulate ESG insights by collecting and analysing large amounts of structured and unstructured data from portfolio companies. The availability and consistency of company ESG data is by far the biggest challenge for pension funds that want to exercise stewardship, and a human-driven approach with AI assistance can greatly improve the efficiency of company analysis. [See also Can artificial intelligence (AI) help stewardship resourcing?]
Connecting the dots
Ultimately, the most valuable advantage for risk and liability aware fiduciary investors is to know what is on the horizon, and AI has proven use cases in both market and credit risk management.
The report explained that since “market behaviour is nonlinear and emergent from dynamic system-wide interactions”, AI is well-placed to identify correlations and offer predictions of market crashes. ML technologies such as random forests and artificial neural networks can effectively identify signs of recession.
AI and ML could also help improve the accuracy of credit risk assessment, the report said.
But the use of AI is not without risks. Just like humans, CFA Institute highlighted that AI models have biases and variances. “Model bias refers to discrepancies between model predictions and actual values, and variance refers to the model’s generalisability and sensitivity to variations in the training data,” it said.
“Ideally, models would have low bias and low variance, but this scenario is not always possible because there is generally a tradeoff between bias and variance.”
Strong bias suggests “underfitting”, meaning the model is not complex enough for the training data, while strong variance suggests “overfitting”, meaning the model is too complex.
“Because market data are often irregular over time… and the statistical properties of such data also change over time, it can be challenging to generate models that appropriately fit these data variations and produce accurate predictions,” CFA Institute said in the report.
“As with other applications of AI and ML, it is important to subject AI-generated outputs to appropriate testing and supervision.”