The idea of what man-made artificial intelligence might be capable of has captivated people for a very long time now. Some signs of this appeared throughout the 20th century; however, it has only been in the last few decades that we have really started to reap the rewards of AI technology in various ways. The hedge fund industry is one of the few that has recently seen an increase in the use of AI. Therefore, the current and upcoming AI and hedge fund trends are rightly considered to be closely intertwined.
Investing has always been about calculating and making predictions based on data. And the more data, the more complicated the calculations needed for reliable forecasts will be.
Fortunately, data and computer technology go hand in hand, as they fuel the growth and development of each other. The first steps towards artificial intelligence were precisely the computer machines, first made for simple calculations and then more and more sophisticated until the powerful computers of today.
AI technology was first introduced to hedge funds as something that is capable of providing assistance in building mathematical investment models. As the AI is capable of handling large amounts of data, it helps ensure that different types of information are considered when building the model. This leads to better informed investment decisions and market forecasts.
So, AI-based tools arrived in the world of finance the same way computers did – to help process numbers and information. However, as we progress and technology develops, hedge funds are able to use AI in many different or interrelated ways. These pathways shape the hedge fund industry trends that matter right now and shape the future.
Current trends in the hedge fund industry are for the most part closely tied to data. This, in turn, makes it very much related to artificial intelligence since, as stated above, data processing is what AI is for.
A major trend in hedge funds is machine learning, which is part of artificial intelligence. Machine learning refers to algorithms that can learn to solve new problems independently, i.e. without additional work from human programmers. This is achieved by training the algorithms with data. The more they work on data, the more they can find new solutions to the problems posed.
Naturally, such a capability is extremely valuable to invest in, as it increases efficiency and improves problem solving. So, this trend is going to continue in the hedge fund industry as well as something that AI developers will continue to work on.
Another notable trend that links hedge funds to AI is data-driven recruiting. It's about hiring, which is mostly done by AI selecting candidates for vacancies by analyzing the data available to them. As AI is able to quickly vet all available talent and make unbiased decisions, data-driven recruiting is gaining popularity in companies across all industries. And hedge funds are certainly no exception.
The strong results of data-driven hiring are also increasing excitement about the possibilities of delegating more management decisions to artificial intelligence. This can include managing employee time for maximum efficiency, as well as making decisions about customers and when to contact them.
Another interesting trend in hedge funds that may not seem AI-related at first glance is something called environmental, social and governance investing, or ESG for short. Also known as sustainable investing, ESG refers to investment strategies that consider the long-term effects of investments on the environment and society.
As with any other hedge fund trend, AI is linked to ESG through data. To make predictions based on long-term effects from perspectives as diverse as environmental and social, a large amount of diverse data must be processed. In addition, very sophisticated analysis is required, and again, machine learning can help.
So even with hedge fund trends that at first glance may not seem directly related to AI, it's usually possible to find a connection with a little closer look.
Finally, if we look to the future of AI adoption in business and finance, we have cause for celebration. There are also concerns about legal regulations that will need to be addressed by lawmakers in order to make human-AI interaction as smooth as possible.
However, in business, the main trend to adopt AI will be to learn how to combine the ingenuity and emotional intellect of humans with the mechanical and fast intelligence of computers. This and other AI implementation tasks will continue to be among the primary goals of all financial industries, including the hedge fund industry.
