Michael Jordaan explains his big new AI ventures

Well-known South African venture capitalist and former FNB CEO Michael Jordaan believes that the development of artificial intelligence (AI) has reached an inflexion point where it could start enabling humanity to do things thought impossible only a few years ago.

Jordaan this week announced two new AI-focused ventures — AI Asset Management and AI Capital — will join a wide range of companies and projects in which his firm Montegray Capital has invested.

Among the respected business leader’s plethora of current ventures are digital bank Bank Zero, mobile operator Rain, and cryptocurrency exchange VALR.

Jordaan explained that AI Asset Management uses algorithms to invest in the US stock exchange NASDAQ, while AI Capital will provide private equity funding for companies that use AI tools.

The former is already investing in NASDAQ, while the latter is seeking to raise $200 million (R3.7 billion) in funding from institutions.

Jordaan sees AI becoming ubiquitous, indispensable, and powerful across the modern world.

He acknowledges the technology had several “false dawns” in the 60 years since it was first conceptualised.

But Jordaan feels the impressive performance and rapid adoption of OpenAI’s ChatGPT language felt like a “seminal moment”.

“It feels like ChatGPT will be to AI what Tesla was and still is to electric vehicles,” Jordaan said.

“My partners and I have been working with algorithmic decision engines for over 30 years, and actively invested in companies using AI-powered tools for the past eight years, through our first two funds.”

“More recently, many machine learning models have surpassed human-level performance, and the size of the datasets used to train these models has exploded.”

“We believe that we are at an inflection point in terms of the value that companies are able to derive from AI.”

ChatGPT has showcased the potential of large language models to millions of users since its launch in November 2022. Editorial credit: Iryna Imago / Shutterstock.com

Jordaan and his partners’ primary motivation for investing in AI is the extensive list of problems they believe the technology could resolve.

However, he has no misgivings surrounding the scepticism about AI’s usefulness in the South African context.

“AI is very much part of the 4th Industrial Revolution, and many of South Africa’s problems are far more basic — for example keeping the lights on, making the railways and ports work efficiently or educating our kids so they can read and write properly,” Jordaan said.

Nevertheless, he believes that AI could help solve many of the country’s most pressing issues, including in the following areas:

  • Healthcare — Improving diagnosis accuracy and providing recommendations for treatment, especially in areas that cannot afford doctors.
  • Agriculture — Helping farmers improve yields and reduce costs.
  • Crime — Predicting crime patterns and identifying criminals
  • Energy — Reducing power wastage and optimising usage
Michael Jordaan

When it comes to AI Asset Management in particular, Jordaan explained there were various ways in which AI could be used to solve investment and trading problems, such as what to buy or sell, how much to buy or sell and when to buy or sell.

AI can empower investment firms with more or unique data, more processing power, and predictive models that can interpret larger data sets.

“While we are not attempting to rewrite classic financial models, our AI use helps us to find investment insights in an ever more efficient landscape and enables us to do so at lower costs than traditional asset managers,” said Jordaan.

He added that the company would not engage in high-frequency trading.

“We will use statistically verifiable models — traditional and AI — to answer the investment questions of ‘what’, ‘how much’ and ‘when’ over the large investment universe of more than 2,500 stocks on NASDAQ,” said Jordaan.

For now, the firm will be focused on providing services to professional and institutional investors.

AI Capital, meanwhile, will invest primarily in existing businesses.

However, it will usually focus on those with relatively little legacy, enabling them to “tilt the playing field in their favour” by introducing new technologies and data-driven decision-making.

“We look for companies that operate in large markets with pioneering business models that are difficult to copy,” said Jordaan.

In addition, AI Capital’s funding will mainly go towards AI tool users rather than tool builders.

“Warren Buffet uses the example of fridges. While manufacturers of fridges made good money, it was companies like Coca-Cola that did the best, by using fridges in their business,” said Jordaan.

“We think the same is true for AI. The companies that successfully use AI tools to create and sustain a competitive advantage will create the most value.”

Jordaan added that AI Capital would pursue businesses that have the potential to generate significant and enduring positive impact and deliberately avoid those that don’t.

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Michael Jordaan explains his big new AI ventures