2040s: AI could be involved in 99 percent of investment management, according to Man Group.
Sources: Bloomberg, Man Group, Superintelligence by Nick Bostrom, Winton
“A machine would have no basis for predicting a crisis since each one is unique,” said Dhar, who’s also a professor of data science and business at NYU. “Humans are good at reasoning about things like a crisis and can sometimes predict it, but we are often wrong. Look at the predictions about interest rates over the last few years.”
Right or wrong, fund managers and their market views will play a major role in the era of AI. Fundamental analysts face a bigger threat.
Firms are sometimes paying almost $1 million in annual compensation for experienced machine learning specialists who can exploit big data. That leaves less money for analysts who research company fundamentals. They may have to learn to code to save their jobs.
“As active managers are forced to spend more money on engineers as their revenues fall, they are going to be forced to slash spending on human equity analysts to protect margins,” said Martin Taylor, who shut down his discretionary hedge fund Nevsky Capital last year in the face of competition from quants. “It’s very depressing for humans.”
Quant firm Acadian Asset Management, where assets soared 79 percent to $93 billion in the past five years, offers a clue to how roles may change in the future.
Managers’ intuition about economic trends are the foundation of Acadian’s long-short and other strategies. Quants then deploy machine learning to refine and improve the 20 most influential factors, from cash flow to unusual events like fraud, that fuel those economic themes to make better predictions. The factors are then plugged into an automated system that takes positions on about 10,000 different stocks across several months or quarters.
Acadian managers and analysts are polymaths: They all have a sophisticated understanding of statistics, and almost everyone writes code and has market experience, said Ryan Stever, director of quantitative global macro research.
The Boston-based firm is investing in AI and big data to better forecast metrics, such as sales, that are key to a company’s performance. If Acadian could wager on sales data before it’s publicly released, the firm would gain an edge.