Algorithmic stewardship: Institutional investors, artificial intelligence and systemic risk

Institutional investors have become the primary owners of public equities, fundamentally transforming corporate governance and market dynamics. This paper explores how the rise of artificial intelligence (AI) in investment management introduces new systemic risks and challenges traditional fiduciary duties. We define “algorithmic stewardship” as the governance of AI-driven decision-making within fiduciary institutions. Our framework connects investor constraints, AI decision rules, and market outcomes, highlighting that while AI can enhance efficiency and risk management, it may also synchronize behavior, amplify procyclical feedback loops, and obscure accountability. The paper discusses implications for regulators, suggesting the need for interaction-based oversight and AI-aware stress tests, as well as responsibilities for institutional investors. We conclude with future research directions on accounting disclosure and assurance in an AI-driven financial ecosystem.