Artificial intelligence demonstrates its power again: hedge funds, which use algorithms, become leaders in efficiency ratings, what, Nevertheless, makes mathematicians and programmers the main components of successful investment.
Ranked in the top of the reputable annual ranking of the best hedge fund fund managers, compiled by LCH investments (invests in other hedge funds and is part of the Edmund de Rothschild Group), entered DE Shaw, Citadel и Two Sigma. All three companies use the so-called “systematic strategies” – общепринятый term to indicate decision-making strategies with minimal participation of the human factor. Non-zero predictability of market fluctuations is quantified by statistical processing of large volumes of observations of the joint behavior of market instruments.
LCH notes, what three newbies, in cooperation with the Pure Alpha Foundation, operated by investment firm Bridgewater Associates, where there is also a systematic element, for the latest 10 years have earned about $90 billion.
The decision to include systematic funds in the LCH rating demonstrates the prevalence of modern quantitative trading strategies in hedge fund activities.. The industry has largely moved away from purely discretionary accounting for systematic trading and big data analysis. “The results clearly illustrate the increasing capabilities of technology investment systems.”, – comments by LCH Investments Chairman Rick Sofer.
According to The Wall Street Journal, Bridgewater hedge fund (ranked first) also working on an automated control system, based on artificial intelligence technology. Foundation owner Ray Dalio predicts, that the system will perform many tasks: from investing in the short term to hiring employees, optimization of their activities and dismissal.
Hedge fund founder predicts, that in the near future, artificial intelligence will be behind three out of four management decisions. Responsible for software development David Ferucci. specialist previously worked at IBM.
hedge funds, using algorithms, in 2007 G. survived a reputational blow: many popular strategies did not work and brought losses to investors. But after the crisis 2008 G. it was algorithmic funds that best adapted to the new reality, while traditional hedge funds found it increasingly difficult to beat the market. Algorithm funds continue to flow for the seventh year in a row. IN 2009 G. he made $408 billion, and in the past - $879 billion (data from Hedge Fund Research).
But don't think about it., that all operations are performed by the computer, but the person does not participate. Against, in hedge fund Two Sigma Investments ($24 billion under management) dozens of non-financial specialists - astrophysicists work, immunologists, linguists. They process information from news feeds, financial statements, weather reports and social networks. Algorithms are written based on the data, predicting the movement of quotations.
Algorithms use text mining to read reports on financial results of companies, meteorological reports (necessary for trading commodity derivatives and shares of the commodity sector). The goal is, to translate this information into trading signals and win back then, what the rest of the exchange public will discover later robots Two Sigma. The company says, that although the accuracy of the forecasts is not 100%, but enough to make a profit.
For example, to understand, is it worth buying shares of a large retailer, algorithms check, whether the quotes go beyond the average level and whether the management is selling shares. This will be accompanied by data and a risk management opinion, does the risk to the company exceed the acceptable. After all checks, the computer will make a deal. To monitor data 24 hours a day, Two Sigma has more 100 teraflops of computing power, capable of performing more 100 trillion transactions and 11 petabytes of disk space.
