Artificial intelligence and other cutting-edge quantitative techniques will soon become crucial to the hedge fund industry, according to a recent report from the Alternative Investment Management Association.
Both systematic and discretionary hedge fund firms will need to use machine learning in order to process information and make the best investment decisions possible, the report added.
AI will be particularly important in short-term trading: firms operating in this area will likely need sophisticated artificial intelligence capabilities.
While there are question marks over whether AI will displace hedge funds’ strategies entirely, the complexity of financial markets data means that, for the foreseeable future, AI will not be able to make accurate long-term financial predictions, the report noted.
“As such, it will not usurp the integral role of humans in the investment world,” the AIMA wrote.
Still, hedge fund firms that do not develop AI to augment humans may soon find themselves at a competitive disadvantage.
Another disruptive force for hedge funds is the growth of responsible investing, AIMA noted.
Commenting on the report, Aberdeen Standard Investments pointed out that smart-beta strategies, for example, are increasingly harnessing artificial intelligence to create more sophisticated offerings.
“There’s also the prospect of the technology giants who own the world’s largest data sets – like Google and Amazon – moving into fund management,” wrote Aberdeen.
“To hold their own, hedge funds have to rely on data and machine learning to drive their investment decisions.”