How hedge funds are using AI and machine learning
Hedge funds are increasingly turning their attention towards artificial intelligence technology to get an edge on the competition when it comes to trading strategies.
Quantitative trading - a subset of what hedge funds do which focuses on algorithms and computers to trade clients' assets - is a natural testbed for machine learning technology, which is good at spotting trends in big data sets and executing at high speed.
For example, at Man Group - a London-based hedge fund - "by 2015 artificial intelligence was contributing roughly half the profits in one of Man's biggest funds, the AHL Dimension Programme that now manages $5.1 billion, even though AI had control over only a small proportion of overall assets," as reported by Bloomberg.
For what it's worth, European Union lawmakers have attempted to legislate against algorithm-centric funds disrupting the market with the Markets in Financial Instruments Directive (MiFID II) regulation. Britain's Financial Conduct Authority (FCA) meanwhile is charged with maintaining order in UK markets, but these efforts can be difficult when the algorithms are by their nature difficult to investigate - also known as black box algorithms.
That being said, any quant fund worth its salt should be investigating the technology at this point, and here are a handful that are on the record as doing so.