Are AI-Powered Hedge Funds Outperforming?

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Last month, institutionalinvestor.com reported that AI-powered hedge funds outperformed their peers,

Hedge funds with artificial intelligence capabilities showed a huge competitive edge over investors that didn’t use AI, new research indicates.

AI-led hedge funds produced cumulative returns of 34 percent in the three years through May, a report Tuesday from consulting and research firm Cerulli shows. That compares with a 12 percent gain for the global hedge fund industry over the same period. Read more

However, things are not so bright under the surface. It was recently reported that one of the largest AI hedge funds is underperforming,

Voleon Group, one of the world’s biggest and best-performing artificial intelligence hedge funds, has suffered large losses after being hit by choppy markets, making it one of a number of computer-driven fund managers to struggle this year

…like many computer-driven funds, Voleon was caught out by this year’s market turmoil. That had left the Investors fund down by double digits earlier this year, and the Institutional Strategies fund down single digits, say people familiar with its returns.

Voleon is unusual in that, while many quantitative fund firms use a small element of machine learning in their investment process, very few focus solely on this approach. Machine learning involves letting algorithms learn and extrapolate rules from the data, rather than a human setting the rules an algorithm should follow. The firm trades a strategy known as statistical arbitrage, which involves betting that short-term discrepancies in prices will revert to a mean. Read more

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