I’ve been documenting the emergence of fully autonomous organisations – organisations that are able to run and scale themselves without the need for any human operators, or intervention – sometimes also known as Distributed Autonomous Organisations (DAO), for years now and I’m now starting to see the first production DAO’s appear and enter the market.
Aidyia, a new fully autonomous Hedge fund is a case in point, turned on late last year it’s a hedge fund that makes all of its stock trades using Artificial Intelligence (AI) – with no human intervention required – and as you’ll see Bridgewater Associates, the world’s largest hedge fund, Goldman Sachs and maybe JPMorgan Chase might not necessarily be that far behind. In fact the pace and rate of change in the industry is now becoming so rapid that it even has its own dedicated event – the Battle of the Quants, the next installment of which is in Frankfurt later this month.
“If we all die,” says Goertzel, a longtime AI guru and the company’s chief scientist, “it would keep trading.”
He means this literally. Goertzel and other humans built the system, of course, and they’ll continue to modify it as needed. But their creation identifies and executes trades entirely on its own, drawing on multiple forms of AI, including one inspired by genetic evolution and another based on probabilistic logic. Each day, after analyzing everything from market prices and volumes to macroeconomic data and corporate accounting documents, these AI engines make their own market predictions and then “vote” on the best course of action.
Though Aidyia is based in Hong Kong, this automated system trades in US equities, and on its first day, according to Goertzel, it generated a 2 percent return on an undisclosed pool of money. That’s not exactly impressive, or statistically relevant. But it represents a notable shift in the world of finance. Backed by $143 million in funding, San Francisco startup Sentient Technologies has been quietly trading with a similar system since last year. Data centric hedge funds like Two Sigma and Renaissance Technologies have said they rely on AI. And according to reports, two others Bridgewater Associates, who could be fully autonomous arguably by 2025, and Point72 Asset Management, run by big Wall Street names Ray Dalio and Steven Cohen – are moving in the same direction, and then there’s Goldman Sachs who are also on their own self-announced automation drive.
Hedge funds have long relied on computers to help make trades. According to market research firm Preqin, some 1,360 hedge funds make a majority of their trades with help from computer models – roughly 9 percent of all funds – and they manage about $197 billion in total. But this typically involves data scientists – or “quants,” in Wall Street lingo – using machines to build large statistical models. These models are complex, but they’re also somewhat static. As the market changes, they may not work as well as they worked in the past. And according to Preqin’s research, the typical systematic fund doesn’t always perform as well as funds operated by human managers.
In recent years, however, funds have moved toward true machine learning, where AI systems can analyse large amounts of data at speed and improve themselves through such analysis. The New York company Rebellion Research, founded by the grandson of baseball Hall of Famer Hank Greenberg, among others, relies upon a form of machine learning called Bayesian networks, using a handful of machines to predict market trends and pinpoint particular trades. Meanwhile, outfits such as Aidyia and Sentient are leaning on AI that runs across hundreds or even thousands of machines. This includes techniques such as evolutionary computation, which is inspired by genetics, and deep learning, a technology now used to recognize images, identify spoken words, and perform other tasks inside Internet companies like Google and Microsoft.
