Article

How artificial intelligence unlocks growth

November 2022

Key Points

  • Artificial intelligence is transforming industry thanks to a wealth of data, faster computers and deep learning algorithms
  • Biotech firms are using AI to handle huge amounts of information to improve diagnostics and create new drugs
  • Baillie Gifford is also experimenting with using AI to make the best use of its investment teams’ time

WATCH: Investment managers Julia Angeles (centre) and Kirsty Gibson (right) answer Malcolm Borthwick’s questions about AI

View Transcript

Artificial intelligence is an exponentially improving technology.

As its development continues to accelerate, what once seemed extraordinary becomes commonplace while new advances continue to astonish.

For example, in 2012, when Google created an AI that detected cats in YouTube videos, many hailed it as a historic moment. These days our smartphones automatically spot all manner of pets in their recordings. But Google’s sister company DeepMind recently achieved a fresh breakthrough by identifying the structure of nearly all proteins known to science.

As investors, what’s exciting is that businesses of all kinds are putting the technology to commercial use.

“One thing that’s really changed over the past decade is the explosion of data that’s been enabled by sensors and computing power,” said investment manager Kirsty Gibson, speaking at Baillie Gifford’s AI-focused Ideas 2022 online conference.

“That’s not just been specific to one or two industries but across the spectrum. So it’s not only ecommerce and advertising that have benefited but also, for example, manufacturers monitoring their processes and pre-empting faults before they occur.”

AI-enhanced biotech

Healthcare has been a frontrunner in using AI to spot patterns in gigantic datasets.

“Human biology is one of the most complex systems out there – I describe it as a problem of large numbers,” said Julia Angeles, an investment manager who specialises in health innovation and shared the stage with Gibson.

“In the past, the data gathered was siloed into different areas of study. For example, the human genome has three billion base pairs. We have thousands of proteins. And there are trillions of bacteria that impact our health. What AI lets us do is combine these many data points to unlock the complexity.

“One benefit is that we can start developing more precise diagnostic tools. Another is we can develop medicines from the bottom up.”

© Los Angeles Times/Getty Images

Moderna’s Covid vaccine is a high-profile example of AI being put to use.

The firm used the technology to optimise designs of its ‘novel mRNA constructs’, essentially the set of instructions that teach our bodies how to protect themselves against the virus. In addition, it used AI to automate quality control, reducing the need for manual checks when speed was of the essence.

“Moderna’s also using AI to predict how the virus will mutate over time,” added Angeles.

“So it can get in advance of the virus rather than just chasing it.”

Exscientia is another example from the biotech industry. It ‘precision engineers’ drugs using AI-designed molecules, optimising its creations for efficacy at combating disease and enhancing patient safety in parallel.

“Normally, it takes more than 10 years and billions of dollars to create a drug,” said Angeles.

“Even then, the chance of success is only about 10 per cent, often because the drug attacks other parts of the body, making it unusable.

“To compensate for all that risk, pharma companies charge high prices. But with AI, there’s potentially an opportunity to reinvent the business model completely.”

Personalised picks

AI in its existing state is sometimes described as being ‘narrow’, meaning users can only apply it to a single or restricted set of tasks. For instance, image recognition or spotting a cybersecurity attack.

Researchers eventually hope to create ‘artificial general intelligence’ (AGI), which would handle a broad range of intellectual challenges, making it more similar to humans.

In the meantime, even narrow AI can be powerful thanks to its scale and speed.

For instance, The Trade Desk uses artificial intelligence to show different adverts to different people watching the same TV programme on connected devices.

“It moves us away from asking who a show’s average viewer is to who is actually watching it, and how can I advertise to them in a relevant way,” says Gibson.

“And that’s only possible because it’s processing 12 million ads a second.”

© Shutterstock/Stephanie L Sanc

Lemonade is another case. It’s disrupting the insurance industry by drawing on data that legacy rivals don’t have access to and then using AI to draw conclusions.

“Lemonade has an AI called Maya that typically asks customers 13 questions,” explained Gibson.

“But it gathers about 1,700 data points, including how long customers took to answer those queries and whether they read all the terms and conditions before deciding how to price the premium.

“So rather than putting you in a kind of average pool of those in the same demographic, the quote is based on you as an individual.”

Common uses of AI

 

  • Image recognition
  • Pattern spotting
  • Natural language processing
  • Speech synthesis
  • Fraud prevention
  • Personalisation
  • Autonomous vehicles
  • Spam filters
  • Facial recognition
  • Recommendation engines
  • Robotics
  • Non-player characters in video games
  • Text-to-image modelling
  • Planning and forecasting
  • Surveillance
  • Emotion analytics
  • Image enhancement
  • Coding suggestions
  • Drug design

Ethical considerations

As a long-term, actively engaged asset manager, Baillie Gifford’s thinking about AI goes beyond how it might generate growth. The firm also considers potential misuses of the technology that could undermine a business’s reputation and prospects over time.

One issue we are starting to grapple with is ‘algorithmic bias’. It arises when AI unfairly favours one group over another. For example, people getting better lending rates or bigger bills because of their race or sexuality, even if those factors weren’t deliberately targeted by the programmers.

“There are huge biases in the world already, and AI can amplify them,” warned Gibson.

To help consider such challenges, Baillie Gifford’s investors and other specialists regularly speak to academics. They include Prof Shannon Vallor at The University of Edinburgh’s Futures Institute, whose chair in the ethics of data and artificial intelligence we sponsor.

“It helps us see potential blind spots,” Angeles said. “Prof Vallor is helping us understand what questions we should consider when engaging with companies.”

 

Investing with AI

Some teams within Baillie Gifford are also experimenting with how AI could enhance their investment decisions.

More companies exist than our investors have time to speak to, not to mention all the research journals, blogs and other sources of information competing for their attention.

“AI is a handy tool that can be a guiding compass. It can help us to focus on what matters and where we can add value,” said Angeles.

Her team is working with four data scientists on a project to explore how this might be possible.

“One exciting area is analysing networks – people on management teams and the composition of boards, to help us assess leadership quality. I could also see people-movement acting as a signal: whether a company is attracting talent or losing it.”

Some futurists have likened artificial intelligence to electricity: a revolutionary technology that will change many aspects of life and unleash countless innovations.

A degree of caution is required but, as investors, there’s good reason to be excited about its potential for change and growth.

“The opportunity is huge,” Gibson concluded.

“It’s already transforming industries, and I think there’s much more transformation to come.”

 

Words by Leo Kelion

Risk Factors        

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in November 2022 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.

The images used in this communication are for illustrative purposes only.

 

Important Information

Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.

Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.

Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.

Financial Intermediaries

This communication is suitable for use of financial intermediaries. Financial intermediaries are solely responsible for any further distribution and Baillie Gifford takes no responsibility for the reliance on this document by any other person who did not receive this document directly from Baillie Gifford.

Europe

Baillie Gifford Investment Management (Europe) Limited provides investment management and advisory services to European (excluding UK) clients. It was incorporated in Ireland in May 2018. Baillie Gifford Investment Management (Europe) Limited is authorised by the Central Bank of Ireland as an AIFM under the AIFM Regulations and as a UCITS management company under the UCITS Regulation. Baillie Gifford Investment Management (Europe) Limited is also authorised in accordance with Regulation 7 of the AIFM Regulations, to provide management of portfolios of investments, including Individual Portfolio Management (‘IPM’) and Non-Core Services. Baillie Gifford Investment Management (Europe) Limited has been appointed as UCITS management company to the following UCITS umbrella company; Baillie Gifford Worldwide Funds plc. Through passporting it has established Baillie Gifford Investment Management (Europe) Limited (Frankfurt Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in Germany. Similarly, it has established Baillie Gifford Investment Management (Europe) Limited (Amsterdam Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in The Netherlands. Baillie Gifford Investment Management (Europe) Limited also has a representative office in Zurich, Switzerland pursuant to Art. 58 of the Federal Act on Financial Institutions (“FinIA”). The representative office is authorised by the Swiss Financial Market Supervisory Authority (FINMA). The representative office does not constitute a branch and therefore does not have authority to commit Baillie Gifford Investment Management (Europe) Limited. Baillie Gifford Investment Management (Europe) Limited is a wholly owned subsidiary of Baillie Gifford Overseas Limited, which is wholly owned by Baillie Gifford & Co. Baillie Gifford Overseas Limited and Baillie Gifford & Co are authorised and regulated in the UK by the Financial Conduct Authority. 

China

Baillie Gifford Investment Management (Shanghai) Limited 柏基投资管理(上海)有限公司(‘BGIMS’) is wholly owned by Baillie Gifford Overseas Limited and may provide investment research to the Baillie Gifford Group pursuant to applicable laws.  BGIMS is incorporated in Shanghai in the People’s Republic of China (‘PRC’) as a wholly foreign-owned limited liability company with a unified social credit code of 91310000MA1FL6KQ30. BGIMS is a registered Private Fund Manager with the Asset Management Association of China (‘AMAC’) and manages private security investment fund in the PRC, with a registration code of P1071226.

Baillie Gifford Overseas Investment Fund Management (Shanghai) Limited柏基海外投资基金管理(上海)有限公司(‘BGQS’) is a wholly owned subsidiary of BGIMS incorporated in Shanghai as a limited liability company with its unified social credit code of 91310000MA1FL7JFXQ. BGQS is a registered Private Fund Manager with AMAC with a registration code of P1071708. BGQS has been approved by Shanghai Municipal Financial Regulatory Bureau for the Qualified Domestic Limited Partners (QDLP) Pilot Program, under which it may raise funds from PRC investors for making overseas investments.

Hong Kong

Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford Overseas Limited and holds a Type 1 and a Type 2 license from the Securities & Futures Commission of Hong Kong to market and distribute Baillie Gifford’s range of collective investment schemes to professional investors in Hong Kong. Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 can be contacted at Suites 2713-2715, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. Telephone +852 3756 5700.

South Korea

Baillie Gifford Overseas Limited is licensed with the Financial Services Commission in South Korea as a cross border Discretionary Investment Manager and Non-discretionary Investment Adviser.

Japan

Mitsubishi UFJ Baillie Gifford Asset Management Limited (‘MUBGAM’) is a joint venture company between Mitsubishi UFJ Trust & Banking Corporation and Baillie Gifford Overseas Limited. MUBGAM is authorised and regulated by the Financial Conduct Authority.

Australia

Baillie Gifford Overseas Limited (ARBN 118 567 178) is registered as a foreign company under the Corporations Act 2001 (Cth) and holds Foreign Australian Financial Services Licence No 528911. This material is provided to you on the basis that you are a “wholesale client” within the meaning of section 761G of the Corporations Act 2001 (Cth) (“Corporations Act”).  Please advise Baillie Gifford Overseas Limited immediately if you are not a wholesale client.  In no circumstances may this material be made available to a “retail client” within the meaning of section 761G of the Corporations Act. 

This material contains general information only.  It does not take into account any person’s objectives, financial situation or needs. 

South Africa

Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.

North America

Baillie Gifford International LLC is wholly owned by Baillie Gifford Overseas Limited; it was formed in Delaware in 2005 and is registered with the SEC. It is the legal entity through which Baillie Gifford Overseas Limited provides client service and marketing functions in North America. Baillie Gifford Overseas Limited is registered with the SEC in the United States of America. 

The Manager is not resident in Canada, its head office and principal place of business is in Edinburgh, Scotland. Baillie Gifford Overseas Limited is regulated in Canada as a portfolio manager and exempt market dealer with the Ontario Securities Commission ('OSC'). Its portfolio manager licence is currently passported into Alberta, Quebec, Saskatchewan, Manitoba and Newfoundland & Labrador whereas the exempt market dealer licence is passported across all Canadian provinces and territories. Baillie Gifford International LLC is regulated by the OSC as an exempt market and its licence is passported across all Canadian provinces and territories. Baillie Gifford Investment Management (Europe) Limited (‘BGE’) relies on the International Investment Fund Manager Exemption in the provinces of Ontario and Quebec.

Israel

Baillie Gifford Overseas is not licensed under Israel’s Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755-1995 (the Advice Law) and does not carry insurance pursuant to the Advice Law. This material is only intended for those categories of Israeli residents who are qualified clients listed on the First Addendum to the Advice Law.

 

28303 10017010