This is the second installment of a two-part examination of the impact of artificial intelligence technology on the investment management community—and investment research– by Cyrus Mewawalla, Founder of CM Research.
Investors themselves will rely more on AI within their research process
The pioneer of algorithmic trading was the mathematician James Simons, who is now retired. The Medallion Fund, which he ran for Renaissance Technology, made him perhaps the most successful fund manager in history.
Now that so many hedge funds run algorithmic operations the sharp edge that Simons and his crew achieved has been blunted. Some very large artificial intelligence systems are deployed by leading hedge funds to capitalise on the latest advances in neural networking and deep learning. Renaissance itself is now co-managed by Bob Mercer and Peter Brown who developed natural language recognition programs at IBM before joining Renaissance.
The biggest of all – Ray Dalio’s Bridgewater – runs algorithmic trading software developed in-house by David Ferrucci, who led the IBM team that developed Watson, the computer that famously beat the human Jeopardy champions and is now at the forefront of IBM’s rebirth.
In June 2015, BlackRock hired Bill MacCartney, a former Google scientist. At roughly the same time, JP Morgan’s Highbridge Capital Management, with $24 billion of assets under management announced it was working closely with AI powerhouse Sentient Technologies.
Goldman Sachs is revamping its entire technology infrastructure around an AI-driven architecture. It has invested over $15 million in robot-analyst firm, Kensho, whose work it uses extensively internally. Kensho is reported to be able to analyse company results better – and significantly faster – than its human counterparts.
Asset managers – and analysts like this one – will begin to rely far more heavily on AI-based research techniques to value companies in future.
Investors will be sucked into the war for AI talent
Very few people can create complex, scientific algorithms or qualify as world-class data scientists. In deep learning, there are probably less than a hundred genuine experts worldwide today and many of them are recent graduates.
Thus far, Silicon Valley has been sweeping most of them up: the AI industry’s “rock stars” are Ray Kurzweil (Google), Geoffrey Hinton (Google), Demis Hassabis (Google DeepMind), Andy Ng (Baidu) and Yann LeCun (Facebook).
But many leading multinationals and investment banks – who have woken up to the fact that AI is fast becoming a core competency for them – have begun to compete for these people too.
A battle is raging between “Wall Street”, Silicon Valley and industrial giants like GE to secure the finest cognitive computing scientists.
Engaging in a talent war with the big internet ecosystems is not easy. Look at the case of Google paying $500m to “aqui-hire” (i.e. to acquire a company in order to hire the talent) DeepMind in late 2014: this AI start-up had a handful of deep learning experts who went on to successfully develop the AlphaGo program for Google.
This talent war in the AI industry means that many large corporations will have to turn more to outside help to build their AI systems. As Jamie Dimon, JP Morgan’s CEO, said in his annual letter to shareholders last year, “Silicon Valley is coming.” He meant it in more senses than one, including, “who has the real power in this algorithmic world?”
When will AI become a reality?
AI is a long-term theme and is likely to move slower in reality than the current hype suggests. Full AI (where machines reach human level intelligence) has a 50% probability of being reached by 2050, rising to 90% probability by 2075, according to an Oxford University poll of AI experts.
But expect disruption in the asset management to start much sooner.
Like 2017.
About CM Research
CM Research is an independent investment research house based in London. We provide thematic research in the global Technology, Media and Telecoms (TMT) sectors. Our focus is on disruptive technologies: how will they unfold; which industries will be impacted; and who will be the ultimate winners and losers. Our aim is to help investors predict share prices and corporate executives stay one step ahead of the technology trends that are shaping their industry. We have an established track record of identifying major investment themes before mainstream researchers. We cover the top 500 global TMT stocks by market capitalisation as well as technology start-ups. For further information on our research services, please contact Elgen Strait by email at elgen@researchcm.com or by phone on +44 20 3744 0105.