Repost: How elite investors use artificial intelligence and machine learning to gain an edge

Many large financial firms are eyeing AI because of it’s significant potential in the industry. According to Christine Qi, Domeyard’s co-founder and partner, “We rely on the help of machines to make easier and faster predictions of what will happen in the next second or minute.” Find out on CNN Business for more insights:


Artificial intelligence and machine learning might sound like the stuff of sci-fi movies. But hedge funds, major banks and private equity firms are already deploying next-generation technologies to gain an edge.


Citigroup (C) uses machine learning to make portfolio recommendations to clients. High-frequency trading firms rely on machine learning tools to rapidly read and react to financial markets. And quant shops like PanAgora Asset Management have developed complex algorithms to test sophisticated investment ideas.


“It takes emotion out of it. Everything is rational,” Mike Chen, an equity portfolio manager at Boston-based PanAgora, told CNN Business from the sidelines of the Cayman Alternative Investment Summit in Grand Cayman.

“We’re not crazy pointed-hair scientists,” said Chen, whose quantitative investment firm manages about $43 billion in assets.


Much of the technology that elite investors use isn’t really new. Financial firms are just better able to harness the power of AI and machine learning because today’s computers can process information much faster. And there now exists vastly more data than there did years ago.


The rise of machine learning


Still, technology is rapidly disrupting the financial industry — and will continue to do so.


“The rise of machine learning will really make our industry unrecognizable in the future,” said Anthony Cowell, head of asset management for KPMG in the Cayman Islands. His clients include some of the world’s largest asset managers, hedge funds and private-equity firms.


For instance, Citi Private Bank has deployed machine learning to help financial advisors answer a question they’re frequently asked: What are other investors doing with their money? By using technology, the bank can anonymously share portfolio moves being made by clients all over the planet.


“Traditionally that kind of information was sourced from your network. You might have had a few coffees or heard about it over a cocktail,” Philip Watson, head of the global investment lab at Citi and chief innovation officer at Citi Private Bank, told CNN Business. “Now, we can share insight that is very valuable.”


Citi also built a recommender engine that uses machine learning tools to advise clients. The platform recommends tailored research reports, solutions and even alerts clients of major events such as the maturity of a bond in their portfolio.



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