AI needs human supervision, argued Tim Liu, a senior researcher at Neo Ivy Capital, a quantitative hedge fund.
“In my view, AI has some potential, but it’s not the key for everything,” he said.
Liu said it would take 100% confidence that generative AI can replicate humans for it revolutionize investment decision-making and replace humans. “I don’t see the day coming any time soon,” he added.
A true leap could come if something closer to artificial general intelligence – a field of AI that is attempting to create software with human cognitive abilities so it can solve unfamiliar tasks – develops, said Gordon Ritter, CIO of Ritter Alpha, an investment advisor that runs systematic absolute-return strategies.
Currently, quants need to be cautious around using AI to generate trading models, said Michael Weinberg, an adjunct professor of finance and economics at the Columbia Business School, and special advisor to the Tokyo University of Science endowment.
“You have to be uber careful that you’re not overfitting or looking at spurious correlations or relationships,” he said. “It could be that that the AI or LLM finds a relationship where certain stocks or industries or markets outperform or underperform while something else happens, but that could be entirely coincidental, not causal.”
Weinberg uses a checklist with over 80 different data points to ascertain what alternatives managers are really doing with artificial intelligence.
For now, generative AI is great at automating routine tasks, he added.
Many quants are seeing applications and productivity gains outside of the investing process.
“[Y]ou can automate a lot of the simpler stuff, like docs and legal… and operations. I think there is tremendous and obvious cost savings and productivity that can be enhanced on in the middle and back office,” said Milind Sharma, CEO at hedge fund QuantZ Capital Management.
Yesim Tokat-Acikel, a managing director and portfolio manager at Principal Asset Management, said she is finding generative AI use cases experimenting with automating and writing responses for requests for proposals, creating initial drafts of documents and commentary.
Using a large language model that costs $30 a month is helpful for automation work and debugging code and can replace some work that was previously done by entry-level quants or software engineers, said Revant Nayar, CIO at hedge fund FMI Technologies.
But for alpha generation, generative AI shouldn’t have an impact, Nayar said. It’s an “extreme statement” he said, but with everyone having access to models, a consensus opinion will take hold. The best quants will be able to think of things LLMs have not, he added.