The next wave of artificial intelligence (AI) will likely be used by hedge funds making long-term macro plays around things like oil prices, involving more data than an analyst could crunch in a lifetime.Although habitually secretive, the use of machine learning and AI among the hedge fund community has been well publicised.
Bridgewater Associates, the world’s largest hedge fund with about $154 billion (£109bn) under management, has been vocal about its use of AI. And it’s not uncommon to hear about investment firms hiring data scientists with PhDs in neural networks, or physicists and astronomers who can remove the noise from data signals.
Publicis.Sapient AI leader Josh Sutton, who has worked in financial services for 15 years and has some hedge funds among his clients, expects to see a confluence of causal analytics and long-term macro strategies.
Using Bridgewater as an example, Sutton told IBTimes UK: “If you look at their historic trading strategies, it’s been very much long-term bets around what’s happening at a macro level. They have built their entire business on having some of the best research and analytics in the industry and some of the smartest minds thinking on that.
“When you combine those two things, I would definitely expect artificial intelligence to be applied to identify large-scale trades that might not be evident to an individual researcher.
“Look at how a lot of funds are making large bets around what is going to happen to the price of oil, for instance, how is that going to impact different industries, what does that mean from a portfolio investment?
“Based on this set of five or 10 things that I believe to be true about what’s going to happen over the next five to 10 years, how does that translate into different bets that I can make across various industry performance?”
Sutton said he expects machine learning to be overlaid with more common sense AI technologies on top to mimic the role of an analyst.
“That’s an area where I think you are starting to see a lot of very private interest, but interest none the less, from a number of the leading financial firms. How you can deploy AI tech to mimic the role of analysts at scale. That’s to do everything from putting together valuation models around companies that you would normally hire an analyst to do, to doing entry-level macro analysis of what’s happening in various industries, based on digesting large amounts of data and coming up with hypotheses.;