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The AlgerPodcast
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​​​Podcast: The Race to Embrace Generative AI

Edward M.B. Minn's Photo

Edward M.B. Minn, CFA;

Senior Managing Director
Portfolio Manager
Weatherbie Capital, LLC

Alger Weatherbie Select 15 Portfolio Manager Ed Minn, CFA, takes a hard look at what companies are doing to leverage the potentially transformative opportunities afforded by generative AI.

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I remain skeptical because I talk to a lot of companies in the real world, and I think if it’s a normal public company, they don’t really know what to do with generative AI. I think this will come over time, but I think of it as more like three to five years out. Alger Weatherbie Select 15 Portfolio Manager Ed Minn, CFA, takes a hard look at what companies are doing to leverage the potentially transformative opportunities afforded by generative AI.
​ALEX BERNSTEIN: Hello, I’m Alex Bernstein and you’re listening to the Alger Podcast, Investing in Growth and Change. Some  of the biggest headlines of 2023 have revolved around generative AI and its potential widespread impact on just about everything. But back in May of 2021, my guest today Alger Weatherbie Select 15 Portfolio Manager Ed Minn, spoke at length about AI in his podcast, The Race to Embrace Artificial Intelligence​. Here to give an update on his current thinking on AI, is Ed Minn. Ed, thanks so much for joining me this afternoon. 

ED MINN: Thank you Alex. 

ALEX: Ed, before we get into AI, I wanted to talk about portfolio construction for a minute, because at Weatherbie you’re really involved in two quite different portfolios. You’re co-portfolio manager along with the Weatherbie team of the Weatherbie Specialized Growth Strategy, which invests primarily in small and mid cap companies. But you’re also the sole portfolio manager of Select 15, which is something of a different animal. Can you talk about what it’s like to work on those two portfolios? 

ED: Well, Specialized Growth, we seek to invest in quality growth companies that we believe will be long term winners and the large caps of tomorrow. And that is a 50 stock strategy, and in Select 15 that is essentially a best ideas version of Specialized Growth, where I take what I view as the most compelling 15 ideas from that 50 stock universe. And I use five key factors to boil it down from 50 to the 15 holdings. 

Number one, growth. The more the better. Number two, estimates. Number three, valuation. Companies that can at least ideally hold their valuation multiple. Number four, catalyst. And number five, diversification. And essentially Select 15 was born out of our highest conviction ideas. 

ALEX: Great. So, Ed, as I was getting ready for this podcast, I was taking a look at the piece we did way back in May 2021, The Race to Embrace Artificial Intelligence​, which people can still find on Alger.com. Tell me, what drove you to be so focused on AI even back then? 

ED: Well, simply put, I view AI as one of, if not the most important mega-trend that will span my career. And so, it’s critical for me to think about this in depth in terms of how to pick the long-term winners and position the portfolio for success. 

ALEX: And you believe that generative AI is actually comparative to earlier transformative technologies like electricity and the Internet? 

ED: I think it is up there. I think that economists cannot detect the improvement in productivity within the first five plus years of major innovations like the Internet, or the steam engine. It takes time for the ecosystem and regulations to develop to really leverage these major innovations. But I do believe that artificial intelligence is going to get there and have as big a transformative impact as the bulls expect and hope. 

ALEX: How do you think the adoption of generative AI takes place? 

ED: I think about it in three phases. There’s kind of the low hanging fruit phase, which we’re in now, with generative AI, as we see large, sophisticated tech companies add features or add on skews to their existing products that are powered by generative AI. Companies like Adobe, Microsoft, Salesforce, some of which already have products, and generative AI power features out there. And I think we’ll see so many more over the next six to 18 months. And I think it is fairly simple for enterprises and consumers, in the case of Microsoft being able to incorporate these into their lives or businesses. And so, this is sort of the low-hanging fruit phase. 

And I think, this initial phase of capturing the low-hanging fruit will see some disappointment, and I think that expectations are overheated in certain areas. And I think of the next phase of generative AI as being when enterprises more fully incorporate generative AI across their processes and begin to customize the models, versus the off-the-shelf model that they can readily access now. And for a variety of reasons, that is very difficult, complex, time consuming, and there are a host of security and privacy considerations that we’re increasingly learning will make this a very multi-year effort. 

And then in the last phase of generative AI, I think the hope and expectation is that everyone will have a co-pilot, or virtual assistant of sorts, that will help them take care of simple tasks, both at work and in their personal lives. Former Google CEO Eric Schmidt has posited that we’ll have co-pilots maybe five years from now. And he said that in February of this year. My own view, which I humbly submit, would be more like 10 plus years from now. But I think we’ll get there and it’s very exciting. 

ALEX: But it sounds like you’re trying to keep a fairly healthy skepticism about it? 

ED: Yes. Indeed. You know, nine plus articles out of ten I read are super bullish on the promise of a generative AI, and I don’t think I’m hearing enough about the many hurdles that it must go through beyond this kind of low-hanging fruit stage, where Microsoft Office 365 adds some generative AI features to it. Sure, that will be easy. But to really embed it in the processes of companies and customize the large language models, that’s a whole different ballgame. 

And I am skeptical of the pace because I talk to a lot of companies in the real world, and I think if it’s a normal public company, they don’t really know what to do with generative AI. They may tell you that they’ll use it to increase some efficiencies in the back office, because they know that investors expect them to have something to say on generative AI. But really, I think they’re at best doing some experiments. This will come over time, but I think of it as more like three to five years out. 

And then, the regulatory environment is not yet well defined, and potentially very onerous. You know, there are some obvious copyright issues that have to be hammered out. 

ALEX: Do you think there are some current opportunities for faster adoption that are legitimate? 

ED: Sure. I think certain industries just lend themselves to faster adoption of generative AI. One that comes to mind is education, specifically language instruction. I mean the whole concept of generative AI is that it can output natural language text. But it’s excellent at translating languages and the holy grail of foreign language instruction has been to have a virtual tutor that is at parry with a human tutor. Right now, we don’t have that. But I think it’s just a matter of time. And not surprisingly one of the launch partners of Chat GPT-4 was a prominent foreign language learning company, Duolingo. 

ALEX: Ed, I wanted to ask about your portfolios. Can you talk about specific holdings that you’re already seeing effectively beginning to leverage this theme? 

ED: Yes. In terms of how we’re positioned in the portfolio, first of all, we’re not getting ahead of our skis. You will not see us invest in an unproven generative AI pure play that just doesn’t fit our investment process. 

I think where you will see us play is in the picks and shovels approach, to get exposure to generative AI. There’s a massive amount of high performance infrastructure networking equipment, compute power management devices, all sorts of equipment that is necessary for the success and adoption of generative AI. And I think we will also gain exposure to generative AI through the optionality of companies that are compelling on their own right. Be they existing holdings which we may add to as they show that they're getting some traction in that area, or new perspective holdings that have that optionality associated with them. 

We think that long term winners in the generative AI space are likely those which have a dated advantage, meaning they have access to a large amount of unique data which will enable them to have a customized large language model, not an off-the-shelf generative AI functionality that everybody else can fairly easily and inexpensively have. I think a lot of the differentiation will come from the data, because the models themselves will be kind of largely similar in terms of performance in the end. 

And so, one such company that comes to mind is Definitive Healthcare. It’s a cloud-based software company that sells healthcare intelligence solutions. So, this company, over more than 10 years, has amassed a huge and unique database of all things healthcare. Some of the data is proprietary, collected by the company itself through surveys or phone calls. Some of it is public data, and their special sauce, if you will, is how they’ve consolidated it, cleaned it up, and created interesting linkages across all this data, such that users, their enterprise clients, can glean insights from the data. And so, this is a company that’s not presently leveraging generative AI in a meaningful way. But three plus years down the road this unique store of data could be powerful, because their customers will be able to interact with Definitive Healthcare’s platform via a more natural language interface, thanks to generative AI. 

A common use case is a pharmaceutical client has a new drug, and they want to figure out how to maximize and accelerate the sales ramp and peak sales of this drug, obviously. And so, they might come to Definitive Healthcare to figure out how many salespeople they should hire, how to divide up the sales territories, what the sales quotas should be, and even what doctors are most likely to prescribe this particular drug. That’s a fairly common use case where this company’s unique database can be extremely valuable to customers. 

ALEX: Ed, final question. What message do you think investors should take away from this conversation? 

ED: My overall view is that generative AI is super exciting and will be transformational in terms of productivity for workers and people in general. However, I think it’s more important than ever to apply a lot of human intelligence to the research process, to separate the hype from the reality, and identify the long term winners and losers. 

ALEX: Ed, thank you so much for doing the podcast this afternoon. 

ED: My pleasure Alex. 

ALEX: And thank you for listening. For more information on Weatherbie Specialized Growth and the Alger Weatherbie Select 15​ strategies and for more insights on artificial intelligence and investing, please visit www.alger.com.


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The views expressed are the views of Fred Alger Management, LLC (FAM) and its affiliates as of August 2023. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities. Holdings and sector allocations are subject to change. 

Important Information for US Investors: This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund and ETF shares. Fred Alger & Company, LLC serves as distributor of the Alger mutual funds.

Important Information for UK and EU Investors: This material is directed at investment professionals and qualified investors (as defined by MiFID/FCA regulations). It is for information purposes only and has been prepared and is made available for the benefit investors. This material does not constitute an offer or solicitation to any person in any jurisdiction in which it is not authorised or permitted, or to anyone who would be an unlawful recipient, and is only intended for use by original recipients and addressees. 

The original recipient is solely responsible for any actions in further distributing this material and should be satisfied in doing so that there is no breach of local legislation or regulation. 

Certain products may be subject to restrictions with regard to certain persons or in certain countries under national regulations applicable to such persons or countries. 

Alger Management, Ltd. (company house number 8634056, domiciled at 78 Brook Street, London W1K 5EF, UK) is authorised and regulated by the Financial Conduct Authority, for the distribution of regulated financial products and services. FAM and/or Weatherbie Capital, LLC, U.S. registered investment advisors, serve as subportfolio manager to financial products distributed by Alger Management, Ltd. 

Alger Group Holdings, LLC (parent company of FAM and Alger Management, Ltd.), FAM, and Fred Alger & Company, LLC are not an authorized person for the purposes of the Financial Services and Markets Act 2000 of the United Kingdom (“FSMA”) and this material has not been approved by an authorized person for the purposes of Section 21(2)(b) of the FSMA. 

Important information for Investors in Israel: This material is provided in Israel only to investors of the type listed in the first schedule of the Securities Law, 1968 (the "Securities Law") and the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995. The Fund units will not be sold to investors who are not of the type listed in the first schedule of the Securities Law.

Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Local, regional or global events such as environmental or natural disasters, war, terrorism, pandemics, outbreaks of infectious diseases and similar public health threats, recessions, or other events could have a significant impact on investments. A significant portion of assets may be invested in securities of companies in related sectors or industries, and may be similarly affected by economic, political, or market events and conditions and may be more vulnerable to unfavorable sector or industry developments. Investing in companies of medium capitalizations involves the risk that such issuers may have limited product lines or financial resources, lack management depth, or have limited liquidity. Assets may be focused in a small number of holdings, making them susceptible to risks associated with a single economic, political or regulatory event than a more diversified portfolio. Foreign securities involve special risks including currency fluctuations, inefficient trading, political and economic instability, and increased volatility. At times, cash may be a larger position in the portfolio and may underperform relative to equity securities. Past performance is not indicative of future performance. Investing in innovation is not without risk and there is no guarantee that investments in research and development will result in a company gaining market share or achieving enhanced revenue. Companies exploring new technologies may face regulatory, political or legal challenges that may adversely impact their competitive positioning and financial prospects. Also, developing technologies to displace older technologies or create new markets may not in fact do so, and there may be sector-specific risks as well. As is the case with any industry, there will be winners and losers that emerge and investors therefore need to conduct a significant amount of due diligence on individual companies to assess these risks and opportunities. 

The following positions represent firm wide assets under management as of May 31, 2023:  Definitive Healthcare, Inc., 0.13%, Adobe, Inc., 0.44%; Alphabet, Inc., 2.24%; Microsoft Corp., 8.22%; Salesforce.com, Inc., 0.0%; OpenAI, Inc., 0.0%, Duolingo, 0.0%.  

The following positions represent assets under management for the Weatherbie Specialized Growth strategy as of May 31, 2023: Definitive Healthcare, Inc., 1.38%.

The following positions represent assets under management for the Alger Weatherbie Select 15 strategy as of May 31, 2023: Definitive Healthcare, Inc., 0.0%.

Fred Alger Management, 100 Pearl Street, New York, NY 10004 / 800.223.3810 / www.alger.com
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