Around 58% of hedge fund execs expect AI to change the industry
Machine learning is expected to have a medium to high impact on the hedge fund sector, according to around 58% of the hedge fund managers and execs interviewed in a report published by KPMG. AIMA and MFA. One interviewee suggested that rather than taking over firms entirely, AI and robots would find niche applications displacing human capital in certain areas like trading and execution. Close to 75% of respondents said automated trading technologies will impact hedge fund returns in the coming five years.

Robots, AI and digital disruption are coming to the hedge fund industry

The robots are coming. And the hedge fund industry appears to be accepting it.

“There’s a very strong business case for replacing humans with algorithms in a lot of areas of the business,” said one respondent in a survey of more than 100 hedge fund leaders and executives.

Some 58 per cent of those interviewed for the report said they expect technologies like artificial intelligence (AI) and machine learning to have a medium to high impact on the sector.

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The report found that while the hedge fund industry may have been “somewhat shielded from the disruption that has been wrought on other financial services sectors by digitisation and technology, it seems clear that the sector is now undergoing a period of technology and innovation-led competition”. (This also appears to be the case in journalism, with newswire Press Association laying out robot plans this week.)

One fund manager with 25 years of experience said: “I’m pretty sure that – by the time I’m out of this business – it will be completely unrecognisable from where it is today.”

KPMG, the Alternative Investment Management Association (AIMA) and Managed Funds Association (MFA) published the report, 'Transformative change', today.

“I think most of these technologies – particularly AI and robotics – will find niche applications and we will start to see more and more programming start to displace human capital, particularly in trading and execution,” said another interviewee. “But I’m not sure that robots will completely take over the firm.”

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Almost three quarters of those surveyed said they expect automated trading technologies to have an impact on hedge fund returns over the next five years. But 26 per cent said the effect will be either negligible or it will have no impact at all.

Adam Hirsh, a KPMG director and contributor to the report, said: “The ability to have over-the-counters (OTCs) cleared centrally rather than picking up the phone to execute the trade will have a massive impact on the sector.

“More to the point, regulation is clearly driving away from bilateral agreements and towards substantially cleared trades which, in itself, will drive major uptake of automated trading over the coming years.”