Getting in pole position: How hedge funds are leveraging Gen AI to get ahead

Foreword

The very mention of artificial intelligence (AI) sparks excitement and anxiety in equal measure. What will the future look like in an AI-enabled world? How will your workday change when a personal AI assistant augments every task, predicting your needs and streamlining your operations in ways current search engines and software cannot come close to competing with? Will you even have a job? These are some of the big questions of today as we stand in the foothills of the next great technology revolution.

AI, in its broadest sense, is not new. The subset of AI most used today is machine learning, which is used in finance, science, and other fields by applying complex algorithms to large datasets. Since November 2022, with the launch of OpenAI's ChatGPT, the public imagination has been captured by another offshoot of AI: Generative (Gen) AI. Gen AI tools, also known as large language models, mine vast datasets to produce sophisticated content, including text, code, images, and other media. However, for every AI convert, a sceptic can point to shortcomings in the technology's abilities and its practical applications in a professional setting.

This report will provide a snapshot of hedge fund managers' attitudes towards Gen AI. It outlines how they use these new tools, where they foresee future opportunities, and the barriers between them and greater adoption. Commissioned by AIMA's Global Research Committee, this report is among our first forays into the space. In addition to surveying AIMA's global asset management membership, we spoke to industry pioneers and other stakeholders to help understand how they are leveraging arguably the most talked about technology of this generation. All interviewees agreed that successfully integrating AI into business operations requires an equal emphasis on investing in technology and people, a theme we explore in this report.

One commentator described how, much like a winning motor racing team, the optimum strategy for success involves pairing the best engine with the best driver. The market research and qualitative interviews revealed the ambitions of some – mostly larger hedge fund managers – to create just such a partnership to secure a pole position in AI adoption. Those asset managers with the resources to do so are investing heavily in building unique products and bringing in expertise to reap the full benefits of this rapidly expanding new toolkit.

The flip side of this market dynamic is the prospect of a future of haves and have-nots between those benefitting from AI tools and those stuck in the pitlane, relying on increasingly inferior legacy technology.

This exploration phase of Gen AI may give an initial advantage to larger hedge fund managers with greater access to resources for R&D. Still, smaller hedge fund managers can keep up the way they always have by being agile and innovative in their approach to new technologies. An openness to new opportunities and a readiness to leverage Moore's Law means that as the cracks of a new technology gap appear, which side of the divide firms are on is up to them.

Tessie Shih

AIMA Research Committee Chair, Capital Fund Management Regional Head, Institutional Business Development
Tom Kehoe

Managing Director, Global Head of Research and Communications

Key Findings

High adoption rate: 86% of hedge fund manager respondents permit their staff to use some form of Gen AI tools to support their work.
Versatility: Among the more popular ways that hedge fund managers use Gen AI tools are to help enhance marketing materials, support their coding efforts, and for general research purposes.
Preferred Gen AI tools: ChatGPT is the top choice among hedge fund managers for Gen AI applications, followed by Bing and Bard.
Anticipated industry disruption: Research, IT, legal and compliance, and investor relations are the hedge fund business functions most likely to be significantly disrupted by Gen AI, as forecasted by survey respondents.
Portfolio management potential: While the use of Gen AI tools in portfolio management is currently limited, a noteworthy 20% of larger hedge fund managers foresee substantial disruption in this area within two years.
Challenges to adoption: Top challenges for Gen AI integration include data security and privacy concerns, inconsistent responses, and the need for comprehensive staff training.
Specialist training: Only around 10% of respondents have received Gen AI training, but almost half of larger hedge fund managers (those managing more than $1 billion) and 26% of smaller ones plan to offer training within the next six months. Nearly half (47%) of all respondents considering training in Gen AI are exploring third-party services, presenting opportunities for training providers.
Hiring trends: Around a third of respondents said it would be important that some or all of their upcoming hires have experience using Gen AI tools. Of these, 10% say this will be important for front-office hires, and, somewhat surprising, 7% say this will be important for middle/back-office roles.

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Each episode will examine topical areas of interest from across the alternative investment universe with news, views and analysis delivered by AIMA’s global team, as well as a host of industry experts.

What would you ask an AI investment guru, seasoned in activating AI for elite private equities at McKinsey, now guiding hedge funds in leveraging AI to invest in alternative assets, transforming both their core operations and back-office activities?

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Additional resources:

AI for Investment: A Platform Disruption

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Key timestamps:

How would you compare AI to some of the most important inventions in human history? - 1:38
Can you define AI? - 3:56
How is AI disrupting modern civilisation today? - 5:45
How is generative AI different from other kinds of AI? - 8:06
Will AI be an evolution or a revolution? - 9:58
What is the roadmap as to when AI will exist across all aspects of our professional and personal lives? - 11:51
How can AI enhance portfolio management? - 15:35
How is generative AI being used to inform the investment decision making process? - 20:31
What is the risk of AI to fund managers? - 24:51
Is the asset management industry ready to deal with the potential disruption of generative AI? - 29:11
How will AI affect headcount at firms? - 31:16
What does the future look like with AI compared to today? - 35:10

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