According to David Siegel, co-founder of Two Sigma Investments, a data-driven hedge fund based in New York City (NYC), technology will soon take over the humans in hedge the fund market. Five years ago, in a room full of investment professionals, Siegel anticipated that tech-driven hedge fund managers would rule the markets of the future. In a nutshell, the problem is that as computer processing power is accelerating at an alarming rate, the volume of available data is also increasing by the day. Quantitative machine-based strategies that have never been superior to traditional ‘human’ (difficult to replicate with an algorithm) strengths –– are likely to be within reach of computers in the near future.
Artificial intelligence is fast taking the place of humans especially in hedge fund domain. Let us take the case of Hong Kong based AI hedge fund Aidya. Developed by Ben Goertzel and his company, it makes all stock trade decisions using artificial intelligence. No human intervention is need for its decision making. Though a human built system, it identifies and executes trades entirely on its own, depending on multiple forms of AI, including one inspired by genetic evolution and another based on probabilistic logic. Each day, after analyzing everything from market prices and volumes to macroeconomic data and corporate accounting documents, these AI engines make their own market predictions and then “vote” on the best course of action. So even if we die the program can continue with its algorithm driven decision-making.
Similarly at Zivanta Analytics, we have developed a program which can bring in a massive change in mortgage hedge fund industry. The program can seamlessly digitize large packets of mortgage forms, which make the analysis and decision making easy and less time consuming. It includes techniques such as evolutionary OCR, character text recognition and machine learning, cutting edge technologies that are increasingly being used to recognize images, identify spoken words, and perform other tasks.
Coming back to financial markets, artificial intelligent systems can automatically recognize changes in the market and adapt in ways that quantitative models developed by the hedge fund managers often fail to do. Hence the day is not far when hedge fund management will altogether become technology driven.