Chinese quant hedge fund managers are turning to ChatGPT-style tools, an emerging AI technology, to aid decision-making as competition in China’s private fund industry rises and the post-Covid-19 recovery wanes. ChatGPT, which is trained using a vast amount of data, can write poetry, compose music and generate human-like responses based on user prompts. Quants are using the tool to understand a company’s fundamentals, identify investment opportunities and risks, and avoid value traps. The trend has also led hedge funds to invest heavily in hardware to enhance computing power required for model-training. Some firms are even seeking to let robots take full control of the investment process.
As mentioned in a recent report from Economic Times, Chinese quant hedge fund managers are doubling down on their bets on artificial intelligence (AI) technology, particularly ChatGPT-style tools. These tools have become increasingly popular since the release of the Microsoft-backed OpenAI chatbot, which sparked a global frenzy.
As China’s post-Covid-19 recovery begins to wane and competition rises in the country’s 20 trillion yuan ($3 trillion) private fund industry, hedge fund managers are turning to advanced AI to aid decision-making. “ChatGPT is an epoch-making application … It can draw conclusions from a complicated network of relationships with numerous dimensions in ways human brains cannot,” said Steve Chen, partner of Shanghai-based MX Capital. “Exploring its ability is now our main focus.”
Chen’s hedge fund is already using ChatGPT to better understand a company’s fundamentals and avoid value traps, project earnings power, and identify investment opportunities and risks. ChatGPT has been trained using a vast amount of data and can write poems, compose music, draw paintings, and generate other strikingly human-like responses based on user prompts.
“A ChatGPT-like tool boosts quants’ ability to process text-related data,” said Feng Ji, chairman of Baiont Capital. “We were also inspired by ChatGPT to build large models using trading data, instead of text.” Feng’s hedge fund, backed by former Google China chief and AI veteran Kai-Fu Lee, has invested heavily in hardware to enhance the computing power required for model-training.
High-Flyer, one of China’s biggest quant funds, has hailed advanced AI as the “greatest innovation of our times.” In April, High-Flyer announced the setup of a research unit to explore disruptive AI technologies.
While AI technology has stirred excitement, the race to develop and adopt powerful AI services has also fueled anxiety about privacy, safety, and job displacement. However, hedge fund managers like Feng are more ambitious, seeking to let robots take full control of the investment process – from data analysis and prediction to decision-making and execution.
Feng’s Nanjing-based company uses high-frequency trading strategies and recruits only computer scientists, not Wall Street traders. “Robots do a much better job than humans in forecasting share moves over the next hour as ‘machine learning is designed to make such predictions’,” Feng said.
As hedge funds continue to explore and adopt advanced AI technology, it remains to be seen how this will impact the broader financial industry. However, the potential benefits of using AI to aid decision-making in a tough investment environment are clear, and it is likely that more hedge funds will follow suit in the coming years.
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