A recent Barron’s article focusing on Artificial Intelligence (AI) considers what managing investors’ money will look like in the not so distant future. Man AHL’s adoption of AI was discussed in the article, and Dr Anthony Ledford, chief scientist at Man AHL, was interviewed:
“On the fund side, hedge fund firm Man Group is one of the AI pioneers. Its AHL unit, the quantitative investing side of the firm, is using AI to reduce slippage, the difference between the expected price of a trade and the price at which it was actually executed. In probability theory, the ‘multi-armed bandit’ is a mathematical problem in which resources have to be distributed across a number of different choices to maximize the reward. Think of strategically putting a bucket of coins in a row of slot machines.
“I was reading about that and thought ‘this is similar to trade execution,’ but instead of receiving a reward, we incur a cost when we pick certain trade execution algorithms,” says Anthony Ledford, chief scientist at Man AHL.
Usually, humans determine which algorithm to use to incur the lowest possible expense and least market impact. But Man’s research found that an algorithm was best-suited to pick the right algorithm for the job.
“It did two things: It got rid of all that human time spent by delegating it to machine learning algorithms and reduced slippage by about 10%,” says Ledford. That AI has been so successful, it is being deployed in Man Group’s other units.”
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