It was AI versus Warren Buffett.
The artificial intelligence was unleashed by Winton, the London hedge fund, to test an old principle of the Berkshire Hathaway Inc. chairman with a view to trading on it: that major acquisitions usually hurt the buyers’ shareholders. Researchers collected and analyzed data on almost 9,000 U.S. deals back to the 1960s.
The result? Winton says Buffett’s thesis doesn’t hold up — big acquisitions don’t inherently destroy value.
“It prevented us from trading on a false signal and potentially losing money,” said Daniel Mitchell, who runs a team of data scientists at the $30 billion hedge fund. Buffett didn’t respond to a request for comment sent to an assistant.
Bit by bit, AI is laying a claim to the future of investing after many false dawns going back decades. Giant money managers like Two Sigma and Goldman Sachs Group Inc. and smaller players like Schonfeld Strategic Advisors have adopted it as a cornerstone strategy or research tool.
From this foothold, how far will AI go?
Man Group Plc’s Luke Ellis sees a slow takeover coming. The $103.5 billion firm in London already devotes about $13 billion to several hedge funds using machine learning. In 10 years, it will play a role in everything Man does, from executing trades to helping pick securities at the firm’s discretionary unit, Ellis, the chief executive officer, said in an interview.
“If computing power and data generation keep growing at the current rate, then machine learning could be involved in 99 percent of investment management in 25 years,” Ellis said. “It will become ubiquitous in our lives. I don’t think that machine learning is the answer to everything we do. It just can make us better at a lot of things that we do.”
The human toll could be severe: 90,000 jobs in asset management, including fund managers, analysts and back-office staff, out of 300,000 worldwide will go poof by 2025 because of AI, according to estimates by consultancy Opimas from a survey of financial firms.
Quant pioneers like Man Group and Winton have a head start in their AI revamp. The obstacles are daunting for almost everyone else.