Artificial intelligence (AI) and machine learning (ML) are reshaping the alternative investments landscape, but professional financial managers still make the most pivotal decisions, according to a new survey from BarclayHedge.
In a sample of 55 hedge funds that responded to the survey, 56% said they use AI/ML to inform investment decisions, with most of the firms that use these tools saying that they do so in order to generate trading ideas and optimise portfolios.
Well over half of the respondents, 58%, have used AI for three or more years, while 37% have used the technology for five-plus years.
Hedge fund managers were among the earliest adopters of advanced algorithms and artificial intelligence techniques, which helps explain why a plurality of survey respondents said they have been using AI/ML for more than five years.
Notably, 68.8% of survey respondents said that they use AI/ML on assets of less than $50 million, suggesting a disinclination to make big bets on the bots. Another possibility is that smaller funds are better able to execute their trades without giving away their techniques and strategies to competing funds.
“The 56% of respondents using AI/ML suggest we’ve passed the halfway point in the race to digitise alternative investment processes,” says Sol Waksman, founder and president of BarclayHedge. “But we can’t ignore that more than four out of 10 of the survey’s respondents still rely on conventional human thinking to guide their investment processes. Concerns about machines taking over the alternative investments landscape may be premature.”
He adds: “Most of the hedge fund managers surveyed are leveraging advanced algorithms and human judgment to deliver smarter investment decisions. The hedge fund pros we surveyed are not turning everything over to algorithms. 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.”