Artificial intelligence and machine learning technologies are revolutionizing the hedge fund industry. Here’s what you need to know.

Machine Learning is a growing and diverse field of Artificial Intelligence which studies algorithms that are capable of automatically learning from data and making predictions based on data. Machine learning is one of the most exciting technological areas of study today. Each week there are new advancements, new technologies, new applications, and new opportunities. It’s inspiring, but also overwhelming. That’s why I created this guide to help you keep pace with all these exciting developments. Whether you’re currently employed in the hedge fund industry, or just pursuing an interest in the subject, or working with us at Produvia, there will always be something here to inspire you!

Here are a few ways artificial intelligence and machine learning can be used in the hedge fund industry.

AI and Hedge Funds

There is a hedge fund crypto rush driven by artificial intelligence. AI is set to replace 90,000 asset management jobs and 45 thousand sales and trading jobs by 2025. (Bloomberg, 2017)

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(Bloomberg, 2017)

Hedge funds that replace their human workers with AI ones are greatly outperforming their traditional counterparts. In fact, Renaissance Technologies, the hedge fund that is one of the most reliant on AI, has a Medallion Fund that has been giving positive returns of between 20% — 98% from 2002 to 2016. During the 2007–2008 financial crisis, Medallion Fund gave annual returns of 85.8% and 98.2% respectively. These are very impressive returns for the legacy financial markets.

Since AI is taking over the hedge fund industry in the legacy financial system, the rush of hedge funds into the cryptocurrency space will inevitably bring AI trading technology into the crypto markets as well.

AI In Industry

Famous hedge funds employing AI in their trading are Man Group, Two Sigma, Aidyia, Binatix, Pit.ai, Sentient Technologies, Walnut Algorithms Renaissance Technologies, and Bridgewater Associates.

  • Man Group uses machine learning to make trading predictions by analyzing exposure caps, asset class, volatility, trading costs. They also find the fastest way to execute trades, to make bets on market momentum, and to scan press releases and financial reports for keywords that could signal that a stock will rise or fall (Bloomberg, 2017)
  • Two Sigma is using machine learning and artificial intelligence to find investment opportunities (Business Insider, 2017)
  • Aidyia uses artificial intelligence to identify patterns and predict price movements in financial markets (Wired, 2016)
  • Binatix uses machine learning algorithms to spot patterns that offer an edge in investing (Recode, 2014)
  • Pit.ai is using a variant of reinforcement learning to evaluate trading strategies (TechCrunch, 2017)
  • Sentient Technologies uses machine learning to trade U.S. stocks (Bloomberg, 2017)
  • Walnut Algorithms is using machine learning to automate investment strategies on multiple timeframes (from high frequency to yearly trend following) (DataConomy, 2017)
  • Renaissance Technologies, a New York based investment management firm founded in 1982, specializes in systematic trading using only quantitative models derived from mathematical and statistical analyses. Renaissance is using powerful computers and sophisticated mathematics to guide investment strategies. (Forbes, 2017)
  • Bridgewater Associates is developing artificial intelligence to automate the day-to-day management of the firm, including hiring, firing, promotions, and other decision-making. The software ranks opposing perspectives from multiple team members when there’s a disagreement. The system is taking input, including peer reviews and employee testing, and uses them to assign employees to specific tasks and provide them with detailed instructions for approaches and time management. (WSJ, 2016)

AI Case Studies

  • Man Group used machine learning to increase assets under management by 77% and increase it’s AHL Dimension fund by 400% over a three year period (Bloomberg, 2017)

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In 2014, Man Group applied Artificial Intelligence (AI) to manage it’s funds (Bloomberg, 2017)

Next Step

Do you work in the hedge fund industry? Are you interested in developing artificial intelligence technologies to solve investment fund problems?

Schedule a call with Slava Kurilyak, Founder/CEO at Produvia.