Key takeaways:
- Hedge fund giant Bridgewater Associates has launched a nearly $2 billion fund whose investment decisions are mainly controlled by an AI model, according to Bloomberg.
- The AI model can scour news at scale, connecting the dots between current and past trends to predict future returns. In a sense, it is becoming a super money manager.
- Humans are still involved in the fund, doing risk management, trade execution, data acquisition and related tasks to round out the investment process.
Hedge fund giant Bridgewater Associates launched a nearly $2 billion fund this week that lets an AI model make the main investment decisions.
Bridgewater has been testing this AI model since late 2023, which it developed internally and applied on $100 million of its Pure Alpha fund, according to Bloomberg. The fund is up 14.4% year-to-date until June 26, on par with the S&P 500.
Why AI? An AI model’s algorithms can absorb far more data at scale than human money managers, piecing together trends from the past and present to project future returns. At the same time, the model doesn’t have emotions such as fear and greed that can cripple decision-making. This AI model, in a sense, is akin to a super money manager.
“You’re going to have intelligence that can read every newspaper in the world,” Bridgewater’s co-chief investment officer Greg Jensen told Bloomberg, which first reported the news. “Machines are better at finding patterns across times and across countries.”
The AI model is programmed to undertand causal relationships in markets. In tests, it was asked to predict such things as how bond prices would be affected by the Fed’s tightening and how asset prices would react if Donald Trump becomes the next president and raises tariffs on Chinese goods.
The fund has around half a dozen investors and a popular question is, “how do you prevent the machine from getting out of control?” said Jensen.
He explained that humans will still be overseeing several functions such as risk management, data acquisition, trade execution and other tasks to round out the investment process.
The AI model was developed by a new Bridgewater unit called Artificial Investment Associate Labs (AIA), which it formed in early 2023.
In the future, Bridgewater plans to incorporate AI models from OpenAI, Anthropic, Perplexity and others.
Ray Dalio, Bridgewater’s esteemed founder, identified AI as one of the “five big, interrelated forces that are driving the changing world order.”
“Turbocharging human intelligence will have big impacts on everything,” he wrote in a LinkedIn post. “The effects of artificial intelligence are being reflected in market pricing via improved prospects for profits of those that produce it, and it is certainly the case that 2024 will be a pivotal year for this influence, as there will be much more learning and development during 2024, which will have big productivity-boosting impacts for many years to come.”
