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JPMorgan Commits Hedge Fund to AI in Technology Arms Race
Pedestrians pass in front of the JPMorgan Chase & Co. headquarters in New York.
(Bloomberg) — JPMorgan Chase & Co. is pushing its use of artificial intelligence beyond investment banking and into hedge funds.
The banks asset management arm is planning a strategy to invest in emerging and established machine-learning statistical-arbitrage hedge funds, according to a person familiar with the matter. The vehicle — dubbed for now the Machine Learning Fund Ltd. — will operate within JPMorgans $15 billion fund-of-hedge funds business, according to June 20 regulatory filings.
JPMorgan has spent billions in the technologyarms racewith rivals like Morgan Stanley, deploying AI and machine-learning in investment banking and tapping industry experts to help shape strategy. Last year, the company started an equity data science unit within its asset management business to explore how AI can improve investment decisions.
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The alternatives business has stumbled on a few recent hedge fund bets. It invested $200 million with Duane Park Capital Management, which closed recently after only two years in business. The group also pulled a big investment from quant firm Mana Partners, whichstruggledalmost from the get-go.
JPMorgans machine-learning strategy comes as the use of AI among hedge fund managers accelerates in an effort to stand out in a crowded field. With machine learning, a subset of AI, computers improve their ability to find trading signals based on data sampled over time, without needing much human intervention.
Hedge funds deploy AI in many ways, from basic research to sophisticated live trading, and its unclear what type of managers the bank is targeting. A Barclayhedge study last year found that two-thirds of managers it surveyed use machine learning in idea generation, more than half deploy the technology for portfolio construction, and 25% utilize it for trade execution.
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Overall, 56% of the 55 hedge funds surveyed in May 2018 said they utilized a machine-learning approach in their investment processes. That compares with about 20% in a Barclayhedge survey from August 2017.
AI and machine-learning hedge funds have lost money this year, according to a Eurekahedge index of about 14 funds that use the technology. But over the longer-term, theyve outperformed other computer-driven funds.
The index has had annualized gains of about 7% over the last five years, about three times the returns of Eurekahedges CTA/Managed Futures hedge fund index. Hedge funds, broadly, posted annualized gains of about 3.6% over the period.
A spokeswoman for New York-based JPMorgan declined to comment.
To contact the reporter on this story: Katia Porzecanski in New York at
To contact the editors responsible for this story: Alan Mirabella at , Vincent Bielski, Josh Friedman
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