More Hedge Funds Using AI, Machine Learning

A majority of hedge fund professionals surveyed by BarclayHedge said advanced quantitative methods played a role in their investment process.

(BigStock image)

(BigStock image)

The use of artificial intelligence and machine learning is rapidly becoming widespread among hedge fund managers, if a recent poll by industry data firm BarclayHedge any indication.

Fifty-six percent of the survey’s respondents said they used AI or machine learning in their investment processes. Just 20 percent had said the same in a BarclayHedge poll last August.

Among current users, slightly more than two-thirds said they relied on these quantitative techniques for idea generation, while 58 percent said they used them for portfolio construction. Other applications of AI and machine learning included risk management, cited by 33 percent of users, and trade execution, reported by 27 percent. “Most of the hedge fund managers surveyed are leveraging advanced algorithms and human judgment to deliver smarter investment decisions,” said BarclayHedge founder and president Sol Waksman in a statement Wednesday.

The survey only included responses from 55 hedge fund professionals, but the rise of artificial intelligence and machine learning techniques within asset management has been well-documented elsewhere. A Greenwich Associates poll last month pointed to accelerated spending on artificial intelligence by fund managers, with 56 percent of its respondents planning to increase the integration of AI into their investment processes. A year before, the world’s largest asset manager, BlackRock, announced a pivot to big data and artificial intelligence.

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On average, AI users surveyed by BarclayHedge said 43 percent of their decision-making process currently relied on machine learning and artificial intelligence techniques. Just under a fifth of respondents said these tools informed 80 percent of more of their investment decision-making.

“The hedge fund pros we surveyed are not turning everything over to algorithms,” Waksman said. “Instead, they’re using them to formulate investment ideas and build portfolios informed by data analysis that the human brain could never hope to accomplish.”

While 37 percent of the respondents using AI said they first adopted it more than five years ago, the second-highest proportion – 27 percent – have only begun implementing machine learning and artificial intelligence techniques within the last year.

“The 56 percent of respondents using AI/ML suggest we’ve passed the half-way point in the race to digitize alternative investment processes,” Waksman said.