Millions turn to AI for pension planning

One curtain-raiser to start: Former hedge fund manager Crispin Odey is challenging a decision by the UK’s Financial Conduct Authority to fine and ban him from working in Britain’s financial sector, in a London court case due to start today.

In today’s newsletter:

• Millions turn to generative AI for their pension planning

• Greg Abel kicks off his first Berkshire buyback as CEO

• Hedge funds rethink emerging market bets post Iran attacks

Millions turn to AI for pension planning

Have you asked your favourite AI chatbot for financial advice recently? Many people do these days, especially younger ones, and they like what they read. There are questions to answer about whether you can trust AI with your finances.

When Dan, a 41-year-old software engineer from Florida, was wondering how to invest the excess cash in his Individual Retirement Account, he turned to ChatGPT for advice, writes Mary McDougall.

Initially looking for one investment to complement his existing portfolio, which included a large real estate mortgage Reit and a fund focused on dividend leaders, he ended up overhauling the whole $200,000 portfolio based on a compelling case made by the chatbot. 

Dan is one of millions of people on both sides of the Atlantic turning to generative AI for pension planning. A study of 5,000 Britons commissioned by Lloyds Banking Group late last year found that more than half of adults were using AI platforms for financial advice.

As many as one in three were using the tools at least once a week for information or advice on money matters, with OpenAI’s ChatGPT the most-used platform, followed by Google’s Gemini, Microsoft’s Copilot and Meta AI integrated into WhatsApp and Facebook. 

Escalating adoption has also caused some turmoil in markets, with wealth managers and brokers seeing sharp falls in their share prices last month after a US-based fintech launched an AI-led tool to help financial advisers personalise clients’ investment strategies.

The worry for investors was over how the technology might undermine the traditional wealth management industry. Jason Wenk, chief executive of Altruist, which developed the tool, warned it made “average advice a lot harder to justify”. 

Still, experts say that it’s critical for users to understand the limitations of AI and check its output before acting on its advice. 

Greg Abel kicks off his first Berkshire buyback

Berkshire Hathaway has started buying its own shares for the first time in 22 months as new chief executive Greg Abel deploys a record cash pile of nearly $400bn.

Abel, who took over as chief executive from chair Warren Buffett at the start of the year, separately disclosed that he bought $15.3mn of company shares. He told CNBC he was committed to purchasing shares every year in the future.

The $15.3mn represented most of his expected after-tax earnings this year, which the company set at $25mn in January. Those purchases were meant to demonstrate his “absolute alignment” with Berkshire shareholders, he added.

“I’m committed to doing this every year going forward,” he said. “We’ll file our 10-K, I’ll write the letter. And after the 48-hour cooling-off period, I’ll purchase $15.3mn next year, whatever it is, after tax dollars.”

The repurchases, which began on Wednesday, are the first to be authorised by Abel and signal a belief that the shares are trading below their inherent worth. He declined to say how many shares the company sought to repurchase.

The $1.1tn conglomerate, which spans insurance, railroad and industrial businesses, does not typically announce that it is in the market buying back its shares. Repurchases are normally disclosed as part of its quarterly financial statements, and the last reported buybacks were completed in May 2024.

“In the interest of transparency with our leadership transition, we are disclosing that we commenced repurchasing shares,” the company said in a filing with the US Securities and Exchange Commission.

Abel’s ascent marks a pivotal moment for the investment giant, as shareholders look for signs of how he will shape the company and insight into his investment acumen.

And for anyone concerned that Berkshire’s high cash reserves could signal a different strategy, Abel stated last month that the chunky cash pile did not signal a retreat from dealmaking.

Chart of the week

Hedge funds are rushing to reassess their positions in emerging market stocks following the US and Israel’s attack on Iran, which sent shares and currencies in some developing countries sliding.

A surge in the US dollar last week led to a turnaround for EM equities, which were up 14 per cent this year prior to the attack. The dollar’s earlier decline had lowered developing countries’ dollar debts and the cost of their imports. 

Meanwhile, low oil prices provided a boost for countries that rely heavily on energy imports, writes George Steer and Amelia Pollard in New York and Costas Mourselas and Joseph Cotterill in London.

But the attacks on Iran risk upsetting those trends. The dollar has strengthened as investors have sought out haven assets, and the price of Brent crude jumped over 17 per cent in the last week of February. Asian and European gas prices also surged.

“I think the EM trade is a big risk now,” an executive at a large macro hedge fund told the FT. 

“There is a lot of leverage in the system. [Funds betting on gains] in EM equities and fixed income have been a very easy one-way trade and I think it will be hugely challenged. It will have implications for the whole hedge fund community,” the person added.

Goldman Sachs’ latest prime brokerage report, covering the week prior to the start of the war, showed hedge fund allocations to EM stocks, as a proportion of their total exposure, were “hovering near five-year highs”.

For an oil-importing country such as Turkey, “it would be inflationary if prices stayed this high, or higher, for longer than a few weeks” but the country had reserves to defend the lira, said Carlos de Sousa, a portfolio manager at Vontobel.

“The fundamental drivers of the good performance in emerging market fixed income are still there,” he added, with countries having spent years reducing their reliance on imports and foreign capital flows.

Blackstone’s flagship private credit fund was hit by $1.7bn of net outflows in the first quarter after an exodus from the asset class cut off a crucial source of fundraising for the private investment giant.

Hargreaves Lansdown is delaying controversial fee rises for some customers, which had prompted a number of its wealthier clients to decamp to rival platforms.

US hedge fund Elliott Management has a roughly £200mn exposure to a UK-based mortgage provider that recently collapsed amid fraud allegations, reigniting fears of poor underwriting standards in the booming asset-backed lending market.

Investors are dumping publicly traded private credit funds as they take losses on bad loans and concerns intensify that AI will wreak havoc on the software companies they have financed.

Carlyle and CVC have agreed to hand UBS a cut of their performance fees in return for the bank selling the private equity firms’ products to wealthy individuals, prompting questions about potential conflicts of interest.

And finally

The Louvre in Paris is running an exhibition juxtaposing two of the greatest sculptors — Michelangelo and Auguste Rodin — who depicted the human body in revolutionary ways. Michelangelo’s powerful, tension-filled figures enter into a dialogue with Rodin’s expressive, sometimes fragmented sculptures. Their works will be brought together for the first time, according to the museum.

From April 15 until July 20