126: Professor Scott Donald – Should Trustees Use AI?

In episode 126, Scott Donald, Professor at the Faculty of Law and Justice of the University of New South Wales, breaks down how artificial intelligence is reshaping the work of superannuation trustees. Efficiency is the big draw, but legal and ethical risks mean trustees are moving carefully. AI is already embedded in parts of the finance sector, from document summarisation to risk management, yet its tendency to hallucinate and behave inconsistently remain serious hurdles. Scott explores where AI can genuinely add value and discusses its application to investment strategy, compliance and even private-market valuations, while stressing the need for strong human oversight. Enjoy the show! Follow the Investment Innovation Institute [i3] on Linkedin Subscribe to our Newsletter Explore our library of insights from leading institutional investors at [i3] Insights Overview of Podcast with Scott Donald, Professor at UNSW 02:00 Using AI as a trustee is a little bit different because you are managing money of somebody else 04:00 AI can be applied where a trustee knows what information to look for, but just asking it to go and look for something can be quite dangerous. 07:30 Trustees have an obligation under the SIS Act to form an investment strategy. I think it would be very dangerous to use AI here. 10:00 Risk is where you don't think to look; AI can help with that 12:30 AI models don't really hallucinate. They don't seem things that are not really there, because they don't care about the truth. 14:30 In contrast to a fund manager, a trustee often has to answer to the Australian Financial Complaints Authority (AFCA) and they will ask you to justify your decision. 'The machine said it', is not an answer that is going to work. 18:00 How human interaction with an AI model occurs is actually quite crucial and we haven't really grappled that to the ground yet 24:00 Should trustees use AI at all? "I think they should consider it, because it can drive down costs" 30:00 Most of the AI systems out there are trained on datasets that are massive, compared the data in a super fund 37:00 As investment and legal professionals, we have to be aware that some of the skills that got us to where we are now are no longer worth the cost to us to acquire Research paper: Donald S, 2025, 'Artificial Intelligence and Super Fund Trusteeship', Company and Securities Law Journal, 41, pp. 137 - 157 Full Transcription of Episode 126 Wouter Klijn 00:00 Welcome to the [i3] Podcast. I'm here today with a return guest, Scott Donald, who is a Professor at the Faculty of Law and Justice at the University of New South Wales. How did you come to research this topic? Scott Donald 00:24 Look, it's very difficult to avoid the issue of AI. It comes up everywhere in the news, talking to trustees about what they're doing, the plans they have for next year, and so on. So for a lot of Trustees, it's a really important issue. Trustees typically don't have enormous resources to spend on things, and they've got an enormous list of things they've got to get through. Yeah, so it's, it's a natural place for them to look for efficiencies and ways to get things done quicker, more rigorously, perhaps cheaper. So just hearing it on the on the grapevine, that they were really interested in this, but, but also a little bit nervous. Yeah, you know, what were the risks? How, what, what, from a legal perspective, might be some of the issues. And so that was really how I started to get engaged in this is to think, Well, we know trusteeship is a little different. Yeah, it's not just about managing your own money. You're managing money for someone else, and that that does change things a bit. So that's how it came about. Wouter Klijn 01:22 So did you find that they were already dabbling in AI, or were they more curious? Scott Donald 01:27 I think most of the big financial institutions are well down the track of thinking about how they can employ AI in different areas. And so the trustees that are part of those big institutions were hearing things or being told that they should consider different ways of organising their operations. But just generally, even at conferences, you'd see people talking in groups, or maybe the presentations from people who are spruiking the advantages of AI. So they were coming across it in lots of different ways, and there'd be very few boards, super fund, boards, managed investment scheme, boards that aren't think, haven't thought about, haven't discussed, how might we use this? Could we do that? Could we do this? Or could we do that? But it's hard to get independent advice on it, because the expertise in the area is so much in the hands of those who are selling the various products that you know you're sitting there as a trustee with lots of other concerns to do with the administration of the trust, to invest and so on. And now you've got, well, hang on, what do I do with AI? It's, it's, it's not an easy area to get into, yeah....