The struggling hedge fund world has seen more and more firms turn to computers for the heavy lifting of analytics in recent years. Quant firms have come to dominate large portions of the industry. In the most recent edition of Institutional Investor's Alpha's list of largest hedge funds in the world by AUM, quant firms figured prominently at the top of the rankings. (See also: What are the Biggest Hedge Funds in the World?)
Particularly at a time when client confidence in hedge funds is faltering, many managers are seeing computers as a way to secure the quickest, most thoroughly-researched bets. And yet, there are other managers who are pushing in the opposite direction, recognizing that old-fashioned human decision-making has something to offer as well.
Four Major Managers Push for Human Analysts
A recent profile by Bloomberg introduces four significant money managers who have moved toward human decision-making and analysis in recent weeks. The report indicates that investment decisions at Winton, a $30.6 billion hedge fund that has a 20-year history of using computer algorithms for trading purposes, must still ultimately be made by humans.
Michael Hintze, a manager of another unnamed fund, indicated in the report that computer models are useful for spotting anomalies in the market, but these models are rarely able to suggest the best ways to answer these anomalies or turn them into worthwhile investment opportunities. Other managers believe that human beings are more useful when it comes to detecting patterns.
Why the sudden deference to human decision-making, which is, of course, prone to human emotion, misjudgment, and more? In recent years, many workers in the finance industry have wondered if the days of human employees are numbered. Some money managers have experimented with automating all sorts of areas of the sector, from securities underwriting to the management of portfolios. What's more, major figures in the finance world and the tech landscape have cautioned that machine learning may usher in a new wave of automation. (See also: Artificial Intelligence Hedge Funds Outperforming Humans.)
Combination of Automation and Human Work
Executives at Winton indicated in a letter that there is, in fact, room for automation in the hedge fund industry. Nonetheless, those leaders believe that computers are not ready to make independent investment decisions. They still require humans to run the operations and oversee decisions at every stage. "The notion that human involvement in investment management should, or even could, be fully automated is wide of the mark," the executives wrote.
So how should humans ensure that they remain viable in a world increasingly dominated by machines? The simple answer is that workers should be prepared to diversify their abilities, be flexible in adopting technological partners, and, perhaps above all, be confident that they are very much necessary in order to ensure that everything functions as it should.