The first presentation of artificial intelligence is often cited as a computer program called Logic Theorist. Allen Newell, Cliff Shaw, and Herbert Simon developed Logic Theorist at the RAND Corp. in the 1950s to mimic the problem-solving skills of a human, cementing the idea that eventually computers would be able to compete with, if not outpace human understanding.
Artificial intelligence has come a long way since Logic Theorist. Now, programs like ChatGPT and Midjourney have made it possible to see computers outpacing humans in the very near future.
According to a recent report from Goldman Sachs analysts Joseph Briggs and Devesh Kodnani, generative AI — the technology that powers ChatGPT — could boost global labor productivity by more than 1 percentage point a year in the decade following widespread usage. Achieving that will require a $200 billion investment globally by 2025, the analysts say.
That headline figure is driving investment managers of all stripes into companies that could play a key role in widespread adoption of this technology. Their bets may come with a little inside expertise — at least on the hedge fund side — where some specialist money managers have been investing in machine learning for decades in an effort to generate a trading edge. And while much of the rhetoric around generative AI is about how it will eventually take all of our jobs, it may be a while before it dominates the investment process.
Hedge fund managers using these technologies say it's important to separate the hype from the reality. These technologies only recently became affordable enough to be considered for widespread adoption and there is still a lot of work to do on improving the capabilities of the technology as well as the validity of the results it produces.
Man Numeric is one such firm. Man Numeric, which oversees more than $41 billion and is part of Man Group, has been developing systematic investment strategies that rely on high-performance computing since 1989. Man Group also runs the Oxford-Man Institute of Quantitative Finance, a partnership with Oxford University focused on developing cutting-edge machine learning technologies for quantitative finance.
Gregory Bond, CEO of Man Numeric, head of the Americas for Man Group, and a special adviser to Man Group's multistrategy funds, said that while the work being done within the artificial intelligence space broadly is compelling, the uptake for investment managers has been more measured. And, there are still a lot of questions to work out.
Bond said that within Man Group and Man Numeric specifically, the approach has been more of a steady adoption of new technologies going back as far as the global financial crisis. "As we've gone through the last 15 years or so it's been a steady adoption. It started on the risk side using AI to help us on the risk part of our process and it has moved into stock and credit selection. It's also now moved into trading. If you look across our entire investment process, it's becoming an important part," he said.
The kind of artificial intelligence Man Numeric is relying on, however, doesn't work exactly the same way as some of the more popular platforms people are trying out today. Bond is quick to point out that there is still a lot of human involvement in the process to make sure that the technology is producing valid, usable results. That distinction, he said, is something investors should focus on when they are looking at money managers that claim to use AI in their investment process.
"We're seeing a renewed interest in AI from investors in part because of the conversation around generative AI," Bond said. "And while there is a desire to use the newest technologies, it's important to focus on what the reality is. Investors and managers should be asking whether AI is actually going to add value to the investment question they want to answer or process improvement they want to make. It may not always be the case that the answer is yes."