Hot-tempered hedge fund titan Cliff Asness, who is worth a cool $2 billion according to Forbes, has admitted his AQR Capital Management has “surrendered to the machines” and fully embraced AI to make trading decisions.
The 58-year-old New York-born money man, who also has admitted smashing his own computer screens in anger in the past, told the Financial Times his Connecticut-based firm is now using machine-based algorithms powered by artificial intelligence to make its bets.
“When you turn yourself over to the machine you obviously let data speak more,” Asness, whose firm has $136 billion worth of assets under management, was quoted by the British financial newspaper as saying.
“It’s been easier that this has been a very good period for us after a very bad period. Odds are it will be a little harder to explain (to investors) in a bad period, but we think it’s clearly worth it.
The move marks a shift in position for Asness, who had expressed skepticism in an interview with the same newspaper nearly eight years ago, saying that his firm was not ready to stand behind big data and machine learning.
“We worry a lot about finding spurious patterns by data mining. In big data combined with machine learning this is even more dangerous because the data sets are so big and machine learning is so good at finding patterns,” Asness said in December 2017.
So-called quantitative hedge funds use supercomputers to analyze and filter reams of data and then process that information to make their investing decisions.
The FT reported that AQR has recently expanded its use of AI and machine-based investing beyond stocks, despite first bringing the technology onboard in 2018.
While the last time Asness’s firm saw mass layoffs was in January 2020 after a poor year led to 10% of its global headcount getting the axe, Wall Street is expecting artificial intelligence to reshape the US financial industry over the next few years.
A January report by Bloomberg Intelligence predicted that up to 200,000 jobs could be cut within five years thanks to the cutting-edge technology that can perform tasks in the way humans do.
The study said major global banks would use AI to “streamline their operations”, with back and middle office roles that perform routine items such as data entry and customer service are the most under threat.
It also warned that the technology could be used to take on responsibilities typically assigned to entry-level junior bankers, such as drafting financial models and analyzing data for megabucks M&A deals.
On Tuesday, the Wall Street Journal reported how Morgan Stanley had used AI to take on the translation of old, outdated coding languages, saving developers an estimated 280,000 hours of working time.
That drive for efficiency is fueled by profit potential.
The Bloomberg Intelligence report projects AI could boost bank pre-tax profits by 12% to 17% by 2027, adding up to $180 billion to the industry’s bottom line.
But Ray Dalio, the founder of the world’s largest hedge fund Bridgewater Associates, has warned markets not to buy all the hype surrounding artificial intelligence.
In an interview with the All-In podcast earlier this year, the 75-year-old, who has invested in AI himself, warned some investors are ignoring basic economic fundamentals, likening it the tech giant crash of the late 1990s.
“This looks quite a lot like 1998 or ’99,” Dalio said, referencing the peak of the dot-com era. “A great company that gets expensive is much worse than a bad company that’s really cheap.”
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