More than half of hedge funds now using AI technology

Hedge funds are using AI and machine learning for investment decisions, but only a quarter are using it for trade execution.

Over half of hedge funds are currently using artificial intelligence (AI) or machine learning technology to inform investment decisions and generate trading ideas, according to a survey. 

Research services provider BarclayHedge found that hedge funds are now leaning towards AI technology for the investment process. Fifty-eight percent of hedge funds are now claiming it has been used for more than three years. 

Despite 56% of respondents using AI and machine learning to inform investment decisions and 67% using it to generate trading ideas, the survey suggests that hedge funds are not quite ready to allow AI or machine learning to execute trades on their behalf. 

Just over a quarter of hedge funds actually use AI or machine learning for trade execution and on average 43% of the decision-making process at hedge funds relies on the technology, reinforcing that human traders are still in control.

“We’ve passed the half-way point in the race to digitise alternative investment processes,” said Sol Waksman, founder and president of BarclayHedge.

“But we can’t ignore that [44%] of the survey’s respondents still rely on conventional human thinking to guide their investment processes. Concerns about machines taking over the alternative investments landscape may be premature.”

The survey concludes that most of the hedge fund managers BarclayHedge spoke with about AI technology are using the advanced algorithms and human judgement to deliver the smarter investment decisions. 

“The hedge fund pros we surveyed are not turning everything over to algorithms,” Waksman added. “Instead, they’re using them to formulate investment ideas and build portfolios informed by data analysis that the human brain could never hope to accomplish.”