New Hedge Funds Are Using AI Bots to Rival Industry Giants

8h1c)r84oabtgb0[qqcy4wn}_media_dl_1.png Barclays Research

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(Bloomberg) — Advances in artificial intelligence are leveling the field for fund managers, making it easier for boutique firms to compete with big macro and bond investors.

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From digesting speeches in multiple languages and crunching global inflation numbers, to tracking company filings and the tone of investment committee discussions, AI is picking up much of the work once carried out by teams of analysts, according to five executives who have recently set up their own shops.

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“Technology has changed the economics of building an investment firm,” said Dharmesh Maniyar, a machine-learning PhD who founded his second fund, MQT Asset Management, late last year. “AI allows a focused boutique organization like us to build powerful capabilities much earlier in our lifespan.”

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Macro funds try to anticipate the impact of global economic and political shifts across markets rather than investing in discrete assets classes or sectors. Their strategies rely heavily on analyzing huge volumes of data and text, work ideally suited to the large language models that have come a long way since Maniyar’s first firm folded.

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“Macro markets have become more complex, more policy sensitive and faster moving, while the tools available to investment managers have improved dramatically,” said Maniyar, who previously managed money at Brevan Howard Asset Management and Tudor Investment Corp.

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Five-person hedge fund Palinuro Capital, launched last year by Alfonso Peccatiello, aims to compete with desks of 20-50 people. It uses LLMs to parse speeches by central bankers from Hungary to South Korea, work that previously would have required regional specialists. “It’s effectively like having a set of unbiased analysts for a portion of the cost,” Peccatiello said. 

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Small bond-focused funds like Osmosis NL face a similar data challenge. Research that once took weeks is completed in days, allowing the young firm to scale up rapidly with a team of just 15, according to Victor Verberk, chief executive and chief investment officer. 

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“A smaller company like Osmosis can now cover the entire universe,” Verberk said, adding that AI has allowed him to cut his three-year hiring plan by 25%. “The machine is never ill, it’s never on holiday, it’s always there.”

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Increased Competition

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AI is already transforming white-collar work across industries such as software, marketing, consulting and accounting. Banks are creating fewer entry-level roles and wealth managers are increasingly focused on their richest clients while bots take care of the rest. 

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In fund management, which has been using machine learning and algorithmic trading for decades, the fast-evolving technology is being widely embraced. A survey of over 400 fixed-income investors by Barclays Plc in May found that half of long-only managers and the majority of hedge funds use AI every day, largely for research.