Can Hedge Fund Management Be Disrupted? #AI #Automation

Hedge Funds are basically alternative investment tools that use pooled funds and incorporate a number of strategies in order to earn active returns for their investors. Hedge Funds are aggressively managed with the goal of generating high returns, which does require a competitive advantage, clearly defined investment strategies, adequate capitalization, a marketing and sales plan, a risk management strategy and much more.

Hedge Funds have been under increased scrutiny from investors and regulators to increase their transparency, transform some of their internal functions and enhance their risk management. In addition, fund managers’ ongoing quest to seize opportunities to mitigate risk by taking astute action, calculating all risks and making practical investments continues. But hedge fund companies are seeking ways to completely change the way we look at Hedge Fund Management by leveraging the next generation Artificial Intelligence (AI) techn0logy.

Aidyia, which is scheduled to start trading US equities this year, is looking to turn the hoards of financial and linguistic data floating online into unique investment strategies. Besides Aidyia, hedge fund giants Bridgewater Associates and Renaissance Technologies wish to create advanced software that can teach itself to adapt to changing market conditions without the need for instructions.

Last year, 40 percent of new hedge funds required computer models for the majority of their trades, according to data provider Preqin. To tackle these rising demands, the concept of algorithmic trading has been designed to react rapidly to market changes. Such algorithms have the power of seeking out windows of trading opportunities within a fraction of a second. The advanced AI systems have the capability of automatically developing their very own mathematical models required for quantitative trading in order to suit the changing market conditions. The AI system being developed by Aidyia gathers information in the form of news, social media, etc. and recognizes patterns and connections in the data to make predictions about the market.

The advances in applying artificial intelligence to hedge fund management and other financial services are being fueled by Silicon Valley. According to industry data provider Eurekahedge, hedge funds using AI to drive investment decisions are outperforming average industry returns. Aidyia itself has extensively tested more than 10 years worth of historical data and has averaged a decent 25 percent year-on-year return.