01 February 2024 - Getting in pole position: How hedge funds are leveraging Gen AI to get ahead

Hedge funds are entering a new era poised to reshape investment strategies and operational efficiencies with the advent of Generative Artificial Intelligence (Gen AI).

• High adoption rate: 86% of hedge fund managers surveyed now grant their staff access to various Gen AI tools to bolster their work, representing a widespread embrace of this transformative technology.
   
• Versatility: Gen AI tools are demonstrating their versatility within hedge funds to enhance marketing materials, carry out general research tasks, and support their coding endeavours.
   
• Challenges to adoption: While hedge funds are eager to harness the potential of Gen AI, challenges persist, including data security concerns, inconsistent responses, and the need for comprehensive training to help maximise the benefit of using these tools.
   

The Alternative Investment Management Association (AIMA) has published new research into how hedge funds are embracing Generative Artificial Intelligence (Gen AI) today, where they foresee future opportunities, the barriers between them, and greater adoption.

Titled 'Getting in pole position: How hedge funds are leveraging Gen AI to get ahead', the report draws insights from a comprehensive survey of 157 hedge fund managers globally and interviews with Gen AI experts and industry leaders.' It offers a snapshot of hedge fund managers' attitudes towards Gen AI and provides a valuable overview of their journey towards integration

The survey reveals a resounding consensus among hedge fund managers on Gen AI's potential to transform operational efficiencies, drive innovation, and provide a competitive edge.

Notably, both large and small fund managers are equally enthusiastic about its prospects. However, intriguing variations emerge in their approaches to resource allocation.

Larger hedge fund managers (those with over US$1 billion in assets under management) appear to have a more bullish view of Gen AI's use cases than smaller peers, particularly around its portfolio management potential. Larger managers are also more likely than their smaller peers to invest in building in-house Gen AI tools and training staff to utilise the technology best.

Yet the path towards full Gen-AI integration is not without its obstacles. Aside from significant cost considerations, surveyed hedge fund managers cite challenges with unreliable content generation and privacy concerns, among others.

Despite these challenges, 2024 could be the breakthrough year for Gen AI in supporting investment management processes. Expert opinions in the report signal a growing belief among hedge funds that deploying Gen AI can provide a competitive advantage. Hedge fund managers are inherently driven by the pursuit of any legitimate advantage over their competitors, and many view AI, especially Gen AI, as a significant opportunity to get ahead.

Tom Kehoe, Global Head of Research and Communications at AIMA, said: "The very mention of the term AI sparks excitement and anxiety in equal measure, heralding the most significant disruption most of us are likely to witness in our lifetime.

The insights from this report underscore the transformative role that gen AI is poised to play across the hedge fund industry through enhanced client services, operational efficiencies, and portfolio risk management, as well as opening new avenues for efficiency and innovation across the sector."

Tess Shih, Chair of AIMA's Global Research Committee and Director, Investor Relations & Business Development at Capital Fund Management International (CFM), added: "Presenting a comprehensive overview, the AIMA report explores the current landscape and future prospects of Generative AI in the hedge fund industry. It covers the prevalence and types of tools used along with opportunities and hiring considerations - a strategic roadmap for engaging with and harnessing the power of this evolving technology."

Methodology:
This report is based on a global survey of 157 hedge fund managers that closed in December 2023. In aggregate, these respondents manage an estimated US$783 billion, with an average assets under management (AUM) of US$5 billion.

Additional insights came from interviews with hedge fund managers and AI consultants who shed further light on the various approaches hedge funds of different sizes, strategies, and locations were taking towards Gen AI.