Hi, I'm Matt. Welcome to AI Street, your weekly dive into the latest in AI + Finance. Here’s what’s trending this week:

• Bank AI use in regulatory focus

• Interview: Peter Zangari PhD on AI in portfolio management

• Coatue ups AI bets

• AI market movers

• Latest in AI Adoption

REGULATION
Banks' AI Use Could Be Included in Stress Tests: BoE

The Bank of England may soon factor AI risks in its annual bank stress tests, according to recent speech from Deputy Governor Sarah Breeden.

According to the BoE’s latest survey, 44% of third-party AI models used by financial firms come from just three providers, more than doubling the concentration seen in 2022, largely driven by increased interest in large language models following the launch of ChatGPT.

The BoE is aiming to address potential AI risks in market volatility, infrastructure dependence, and automated decision-making within core banking.

The speech echoes concerns from U.S. regulators. In September, SEC Chair Gary Gensler warned of potential systemic risks from widespread reliance on a small number of AI models. In August, CFPB General Counsel Seth Frotman critiqued regulatory sandboxes for AI, and over the summer a U.S. Senate report expressed concerns about regulatory gaps in managing AI risks in hedge funds.

Deeper AI Integration

Financial firms are advancing beyond basic AI applications, per the BoE. Initial adoption primarily focused on back-office efficiency and customer service, but AI is now increasingly being applied to critical functions such as credit assessment (16% of firms), algorithmic trading (11%), and capital management (4%).

Next Steps

The BoE is establishing an AI Consortium to collaborate with private sector firms in assessing emerging AI-related risks. The central bank’s Financial Policy Committee is set to release an assessment of AI’s impact on financial stability early next year.

Trump Win Signals Shift in AI Regulation

Trump's election victory could lead to lighter-touch regulation, with the president-elect promising to "cancel" current AI oversight measures "on day one."

The change could embolden state-level AI regulation, particularly in Democratic strongholds like California, while potentially leading to stricter AI-related trade controls with China. (Yahoo/TechCrunch)

INTERVIEW: Five Minutes With…
Peter Zangari, PhD, on AI in Portfolio Management at MDOTM

"We're at an inflection point," says Peter Zangari, Partner & Head of Americas at MDOTM Ltd. "The capabilities we're developing now can take a model portfolio and produce thousands of individualized portfolios based on specific client preferences. These tools can execute what used to be nearly impossible."

Zangari would know. Before joining MDOTM, he led research and product development at MSCI, where he managed a team of 400 professionals and witnessed firsthand the convergence of massive computational power, vast amounts of data, and evolved AI algorithms. Prior to that, he led quantitative risk strategies for Goldman Sachs Asset Management.

The London-based company, whose clients include Zurich, Amundi, Momentum Investments and Lazard Asset Management, has built an AI platform to efficiently manage thousands of portfolios while maintaining personalization for each client.

MDOTM's AI platform - called Sphere - combines three AI capabilities: AI-driven investment insights that support strategic and tactical asset allocation decisions using market, fundamental and macro data (rather than social media sentiment); a portfolio management system that creates and rebalances customized portfolios; and a solution to streamline the creation of portfolio commentaries and reporting with analytical and generative AI. 

In this interview, Zangari shares his thoughts on AI's transformation of portfolio management, the impact of unstructured data analysis, and why some firms are still hesitant to embrace the technology. With a PhD in Economics and Econometrics from Rutgers University, he combines deep quantitative expertise with practical business experience in implementing AI solutions.

Key Takeaways:

• AI enables portfolio customization at scale: seconds vs weeks

• AI interconnects traditionally separate portfolio management functions

• AI unlocks insights from unstructured financial data

• AI adoption succeeds by solving specific problems, not leading with tech

This interview has been edited for clarity and length.

How is AI affecting portfolio management? 

…

In the wealth management space, AI enables large-scale, personalized model portfolios. For example, a wealth manager could have an investment committee that sets specific market views—whether on sectors, countries, or industries. In the past, translating these views into client portfolios took considerable time and effort. But now, AI can take these views and create a customized model portfolio that aligns with each client's unique preferences. It's an incredible level of customization at scale. What used to take weeks can now be done in seconds, all while maintaining alignment with the core investment strategy. This is especially valuable for wealth management, where personalization is increasingly important.

How important is AI's ability to examine unstructured data? 

AI's ability to process unstructured data is one of the biggest advancements in the field. Ten years ago, no one was talking about unstructured data—meaning data that isn't organized in a pre-defined way, like written text or images. Today, we can feed such data directly into AI algorithms, which can then interpret it without us needing to create a structured table or spreadsheet. The AI essentially takes this raw data, understands it, and applies analytics to extract meaningful insights. This is just the beginning of what's possible. We used to manually process such data to analyze it, but now the technology does it automatically. It's incredible progress, and I think we're only scratching the surface of what it will eventually be able to do in finance.

My son is in college, and he's taken an interest in being an equity analyst. I told him, "Think about what ChatGPT and other tools mean for equity research." Equity research won't go away, but it'll change fundamentally. 

Read the full interview here

ICYMI
Recent Interviews:

• Arta’s Chirag Yagnik on AI-powered wealth management

• Finster’s Sid Jayakumar on AI agents for Wall Street

• Sov.ai's Dr. Derek Snow on AI for fundamental Investors

• Bain’s Richard Lichtenstein on AI adoption in private equity

• Snowflake’s Jonathan Regenstein on AI building novel datasets

🗽 I’m heading back to NYC next week for the ACM International Conference on AI in Finance (ICAIF 2024). Let’s connect if you’re attending!

HEDGE FUNDS
Coatue Seeks $1B for AI Bets

Coatue Management, the $50 billion tech-focused hedge fund firm, is seeking to raise $1 billion for its flagship fund to expand its AI investments. The firm, led by Philippe Laffont who believes human-like AI robots could be 15 years away, will raise most capital from institutional investors while also tapping wealthy individuals through a new partnership with Raymond James.

This is Coatue’s first partnership targeting bank and brokerage clients since 2017, according to Bloomberg.

MARKET MOVERS

Nvidia Becomes World’s Largest Company

Nvidia Corp. became the largest company in the world on Tuesday by surpassing Apple Inc., highlighting just how dominant AI has become on Wall Street. Nvidia has soared more than 850% since the end of 2022.

The company has seen explosive growth over the last two years, emerging as the primary source for computing power for generative AI. The chipmaker’s revenue has doubled in each of the past five quarters.

The Santa Clara, California-based company briefly eclipsed Apple in June before sliding back to the No. 2 spot. (Washington Post)

AI Stock Movers Through Nov. 6

Here’s a snapshot of the week’s top AI-driven stock movers:

• Palantir Technologies Inc. (PLTR) +27%; on higher-than-anticipated spending from the US government on its AI tech.

  • “We absolutely eviscerated this quarter, driven by unrelenting AI demand that won’t slow down,” Palantir co-founder and CEO Alex Karp wrote in the company’s earnings release on Monday. (← First time I think I’ve ever seen the word eviscerated in a earnings press release.)

• DuPont de Nemours (DD): +3.2%; Strong 3Q results and raised full-year profit forecast, driven by robust AI-tech demand.

• Super Micro Computer (SMCI): -4.8%; Earnings miss and weaker-than-expected guidance; uncertainty over 10-K filing timing adds to decline following last week's auditor resignation.

• Booking Holdings (BKNG): +6.9%; Earnings beat on solid bookings growth; management commented on AI-powered targeted ads and traveler/partner support.

• Emerson Electric (EMR): +17.2%; Robust 1Q25 earnings; announced acquisition of remaining stake in AspenTech (AZPN.O) to advance automation.

Data provided by Linq Alpha, an AI copilot for hedge funds. 

ADOPTION
Financial Firms' Rapid AI Adoption Still in Early Days: Study

From a recent Money20/20 report:

• 76% of leading financial firms have announced AI initiatives since 2023

• 46% embedding AI in customer products, mostly in limited ways

• Key divide emerges: Fintechs chase revenue growth, banks focus on efficiency

• CFO software companies lead adoption - 86% have AI in customer products

• Public firms more likely to announce AI plans than private companies

Traditional banks are moving cautiously on efficiency plays, while tech-focused firms pursue customer-facing applications. Most initiatives remain in early stages.

Gen Z, Millennials Use AI for Personal Finance Advice: Report 

New Experian Study Shows Generative AI's Growing Role

• 67% of Gen Z and 62% of millennials use AI for financial decisions

• Top uses: Budgeting (60%), investment planning (48%), credit improvement (48%)

• Adoption drops sharply with age: 41% of Gen X, 28% of boomers

• 98% of young users report positive experiences

Thanks for reading!