Will 2024 be a milestone year for hedge fund use of AI?

Usage of generative artificial intelligence in the financial services sector is progressing at an uneven pace, but one investment industry segment appears to be embracing its potential.

The hedge fund industry is poised to reshape investment strategies and enjoy operational efficiencies from using the technology with 86% of fund executives telling a poll by the Alternative Investment Management Association that their teams have access to Generative AI.

The technology is primarily used for creating marketing materials, carrying out general research tasks, and supporting coding endeavours. But it is the potential to use it for the investment process is keenly observed.

However, before that can happen, barriers to adoption will need to be overcome including privacy and data security concerns, inconsistencies in the responses provided, and comprehensive training for teams.

"The very mention of the term AI sparks excitement and anxiety in equal measure, heralding the most significant disruption most of us are likely to witness in our lifetime,” said Tom Kehoe, global head of Research and Communications at AIMA. “The insights from this report underscore the transformative role that gen AI is poised to play across the hedge fund industry through enhanced client services, operational efficiencies, and portfolio risk management, as well as opening new avenues for efficiency and innovation across the sector."

Hedge funds of all sizes are optimistic about generative AI’s potential, but larger firms (over US$1 billion AUM) are more likely to be bullish, especially regarding portfolio management.

The AIMA report - Getting in pole position: How hedge funds are leveraging Gen AI to get ahead – includes expert opinion that hedge funds that use the technology will gain a competitive advantage, which may be the most compelling driver of usage in the near future.