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Gaming pays off

AI key for third wave of hedge fund managers

Jeffrey Tarrant thinks machine learning and artificial intelligence are the future for hedge funds.

Veteran hedge fund seeder Jeffrey Tarrant is betting that a new generation of hedge fund managers proficient in machine learning processes will outperform and grow faster than those using traditional discretionary approaches.

“Artificial intelligence will fundamentally change investment management,” professed Mr. Tarrant, CEO and chief investment officer of Protege Partners LLC, which manages $800 million in emerging hedge fund seeding strategies.

Mr. Tarrant launched MOV37 LLC in November 2016 to invest in small, emerging hedge funds utilizing autonomous learning investment strategies. He is CEO and CIO at the fledgling firm.

“This is the third wave of investment management. It's populated by guys aged 25 to 38 who possess totally different skill sets” than those used by the first wave of discretionary managers and the second wave of quantitative managers, Mr. Tarrant said.

The new toolbox includes mastery of automation and competent analysis of vast streams of data, Mr. Tarrant noted, adding that the possessors of these skills “were the guys whose parents yelled at them for spending too much time in the basement playing electronic games. They are wired differently and don't give a (hoot) about the old models.”

Perhaps most important to the current and future success of these third-wave hedge fund managers is the fact that “artificial intelligence is finally working,” Mr. Tarrant said.

By way of example, Mr. Tarrant pointed to the much shorter learning curve needed by a computer to beat a human at logic games. It took a scant six years before Ke Jie, the world's best player of Go, an ancient board game, was defeated by a computer in May, compared to 12-year learning curve for a computer win over the world chess champion in 1997 and 38 years until the world's best checkers player was a computer in 1994.

This article originally appeared in the June 12, 2017 print issue as, "AI key for third wave of hedge fund managers".