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Special Report: Artificial Intelligence in money management

Data labs becoming essential for managers to advance growth

Jeffery Shen thinks different approaches of managers and data scientists are converging.

When it comes to machine learning and money managers, the coolest "must have" is a bona fide data lab, preferably one with close links to a well-respected university and proximate to a major technology center.

BlackRock (BLK) Inc. (BLK), New York, is the latest firm to establish a data research center, checking off the boxes by locating the lab in Palo Alto, Calif., in Silicon Valley near Stanford University.

In fact, the ties between BlackRock and Stanford will be extremely close, because the director of the data lab is Stephen P. Boyd, chair of the university's electrical engineering department and Samsung Professor of Engineering and Professor of Electrical Engineering in Stanford's Information Systems Laboratory.

"Data scientists and money managers have very different philosophical approaches and cultural perspectives," said Jeffery Shen, managing director, chief investment officer active equity and co-head of BlackRock's systematic active equity strategy. He is based in BlackRock's San Francisco office.

"Academics focus on empirical conclusions and investment managers are concerned about results, but the two approaches are converging," Mr. Shen said, stressing the work of the lab will benefit from bringing together data scientists recruited from nearby Silicon Valley tech companies and investment managers.

Mr. Shen said the California data lab "is an enablement tool for running BlackRock's $6.3 trillion of assets" and its charge is to find ways that BlackRock can use artificial intelligence in all aspects of the company, including investment management, operations, distribution and mass customization," Mr. Shen said.

J.P. Morgan Asset Management (JPM)'s intelligent digital solutions business maintains a data lab within the firm's midtown Manhattan headquarters, where teams of data scientists, technologists and designers work to optimize the use of data analytics in managing investment portfolios, said Jed Laskowitz, head of IDS.

The space features cutting-edge technology, including high-powered cloud computing environments for modeling and collaborative areas for ideation, he added.

JPMAM managed $1.7 trillion firm wide as of Dec. 31.

While other traditional money management firms, including Boston-based Fidelity Investments, maintain dedicated AI research units, sources said data labs truly are the tech playgrounds of hedge fund managers, particularly those running systematic quantitative strategies, including managed futures.

Two Sigma Investments LP, for example, relocated its data lab to Cornell Tech's new campus on Roosevelt Island in New York last year.

The move was prompted by the desire to let its financial engineers work side by side and collaborate with Cornell Tech students, researchers and professors in Two Sigma's new Collision Lab, well away from its main offices in the SoHo section of New York.

The lab also serves as an incubator for startup tech companies backed by Two Sigma Ventures, a subsidiary of the $52 billion hedge fund.

Winton Group Ltd. manages $28.5 billion in managed futures, absolute return and long-only equity strategies using a high degree of machine learning from its London headquarters as well as a data mining-focused lab in San Francisco, in another instance of managers placing themselves near technology hubs in hopes of luring data scientists to asset management.

Man Group PLC has maintained a close relationship with the University of Oxford since 2007 when the London-based alternative investment manager provided funding for the Oxford-Man Institute within its existing research laboratory in Oxford, England, said Megan Ingersoll, a Man Group spokeswoman.

In 2016, the OMI expanded its focus on machine learning and brought in 20 specialists from the university's Department of Engineering Science's machine learning group with the aim of creating a stimulating, collaborative environment, according to a Man Group news release.

Man AHL, which runs the firm's systematic managed futures strategies, uses machine learning extensively in the quantitative strategy.

Man Group managed a total of $109. 1 billion as of Dec. 31.