Man Group’s AHL fund steps up AI push - http://on.ft.com/1WzdCAj
Man's Group computer-powered AHL hedge fund plans to ratchet up its investment in “machine learning”, a hot new area of artificial intelligence that is garnering increasing attention in the investment industry.
AHL, which manages more than $19bn, is mostly known for investment strategies that follow trends and its two main funds have returned an average of 12-13 per cent annually since the mid-1990s.
But the success of its machine learning experiments in recent years led the company to plough more money into the field, and it is now the single biggest investment area at AHL, according to Sandy Rattray, chief executive.
“It’s very powerful, and could unleash a very important period for quantitative investing,” he said.
AHL has been researching machine learning — a field of artificial intelligence where dynamic algorithms pore over vast data sets for patterns — for five years, and has been using the technique in trading for the past three years. The results have been encouraging, according to executives at the hedge fund.
A machine learning strategy helped one of AHL’s funds swing from a narrow loss to a narrow gain in August last year, when markets were convulsed by concerns over China, by autonomously buying and selling stock at vital junctures in the turmoil. Many traders initially stood on the sidelines, unable to quantify rapidly-changing data.
“It learnt to buy the dip,” said Nick Granger, co-head of research at AHL and deputy chief investment officer. “No one taught it to do this, it learnt how to do this when we showed it a lot of data. It responds to the market environment, which makes it much more dynamic.”
Machine learning involves writing algorithms that can continuously “learn” from evolving data, and is an increasingly popular niche of AI that is being used for everything from generating film recommendations for Netflix to Google’s translation service. Sophisticated hedge fund and other money managers are ramping up their use of the technique.
The AI field has been around for some time, but increasingly fast computers allow fund managers to use machine learning on an accelerating data deluge.
Some experts are more sceptical over the utility of machine learning to trade financial markets, pointing out that financial data are immensely complex, chaotic and more “noisy” than other industries. The concern is that it has become a faddish concept in quantitative investment.
Mr Rattray concedes that machine learning has become a buzzword, but argued that AHL’s results using the AI technique shows it has immense promise.
“Our results have been encouraging, which is why we have been throwing a lot of money at it,” he said. “We’ve moved from a world where we’d come up with a model and check if it fit the data, to a world where we feed in data and find models.”
The success of AHL — its four main vehicles returned between 3.9 and 7.6 per cent in the first quarter, despite the turbulent markets — helped keep Man Group’s overall funds under management relatively steady at $78.6bn, as net inflows of $1.3bn into its “quant” funds offset outflows from its more traditional hedge funds.