At Nuveen, generative artificial intelligence (AI) is enhancing our muni research analysts’ process to identify the most attractive assets with more efficiency and speed and freeing up time for them to pursue further innovation in the asset class.

The future is looking bright for muni investors as advisors and their clients’ confidence continues to grow in the dependable, public purpose investments and tax-free income for which munis are known.

A Vast Muni Universe
From small towns to states with world-leading GDP, today’s universe of muni issuers extends to more than 80,000 borrowers and 1.5 million individual securities—far surpassing the combined total of 5,704 domestic and international companies listed on the NYSE and Nasdaq.

Historically, evaluating the credit worthiness of any one of those bond issuances has involved the examination of a broad spectrum of disclosure documents including preliminary and final offering statements; financial statements, both annual and quarterly; trustee notices about payments, defaults, or redemptions; rating changes; budgets; and event disclosures—a process ripe for disruption in the age of AI.

Once the relevant documents have been sourced and assembled in electronic form, Nuveen’s proprietary AI application is able to comb through and “interrogate” the content with a set of pre-selected questions designed by muni credit analysts to elicit critical insights, which are then offered back to the user in an accessible format.

The application’s innovation is the user’s ability to ask extremely specific questions closely tailored to an issue’s unique characteristics. The search function can probe an issue’s special nuances—say, what percentage of a hospital system’s revenue is linked to governmental reimbursements—or look across the entire credit universe and identify issuers with exposure to a key marketplace event or counterparty. And the information is delivered in seconds—as opposed to the hours or days once required under the traditional process.

AI + Human-Powered Research = Credit Analysis
Importantly, we have tightly wedded the application to our fundamental, bottom-up, human-powered credit research process. With every interaction, our analysts are fine-tuning their question prompts, literally teaching the technology how best to identify critical information. Analysts then use the information gleaned by AI from the disclosure documents to form credit opinions and investment recommendations. The more our analysts work with the application, the better that it becomes in enhancing our human research process—and extracting key credit information more efficiently from large numbers of documents, and in a timelier way to ensure that we have the information needed to deliver superior opportunities to advisors and investors.

We also consistently apply protocols for reviewing the system’s outputs to ensure its accuracy and validity. Our proprietary AI tool identifies the sources within the disclosure documents that inform its answers, allowing analysts to verify the system’s output. Keeping our people familiar and comfortable with the technology is essential too, so we are providing appropriate AI training to create a cohort of “citizen developers” who won’t always need to rely on our tech professionals to derive the application’s full benefits.

All these principles will be top of mind as we identify other elements of our research process that AI can benefit.

Munis In Our Everyday Lives
Munis fund essential facilities and functions such as state and local governments, K-12 schools, colleges and universities, roads and airports, hospitals, water and sewer utilities, housing, and more. They are distinctive in the extent to which their financing role touches all Americans’ everyday lives and this critical function, we believe, is part of the assets’ inherent appeal for advisors and their clients who are keen to see their investments at work in the world at large. We believe AI could also ultimately help the advisors we partner with to tell even more impactful muni “Stories.”

Over time, we hope that AI will help us discern even more of the critical connections between munis and investors’ lived experience—and lend even more power to the efforts of our “human experts” to illuminate those connections for investors every day.

Vijay Kasarabada is chief information officer at Nuveen. Margot Kleinman is director of muni research at Nuveen.