By Vincent Bielski
Morgan Stanley, which aims to expand its use of artificial intelligence, has hired Michael Kearns to help guide the effort.
Kearns is a computer science professor at the University of Pennsylvania and has years of experience at Steve Cohen’s former hedge fund and other Wall Street firms. He will lead Morgan Stanley’s AI research and offer advice on deploying the technology for projects across the company, the New York-based firm said in a memo to employees Tuesday.
Chief Executive Officer James Gorman has made new technologies a top priority at Morgan Stanley, an early mover in electronic stock trading. The bank is spending about $4 billion in an initiative that spans trading — particularly in fixed income — wealth management and other units.
“Michael uniquely combines a distinguished career in academia and research with professional experience in the application of AI to complex business problems in financial services,” the company said in the memo.
Kearns, 55, has been researching AI since its early days in the 1980s, writing his Harvard Ph.D. dissertation on the complexity of machine learning and working on the technology for a decade at AT&T Bell Labs. Shortly after arriving at the University of Pennsylvania, he took on consulting roles at Lehman Brothers Holdings Inc. and then SAC Capital Advisors in the multi-quant division until 2013.
Kearns’s expertise includes the branch of AI called reinforcement learning that can be used to improve trading execution and reduce associated costs. While standard machine learning models make predictions on prices, they don’t specify the best time to act, the optimal size of a trade or its impact on the market.
“With reinforcement learning, you are learning to make predictions that account for what effects your actions have on the state of the market,” Kearns said in an interview in early June.
Morgan Stanley is the top stock-trading firm globally, helped by early efforts in computerization and work with quant funds. Last year the bank began to augment its 16,000 financial advisers with machine-learning algorithms that suggest trades and take over routine tasks. On Monday, the firm hired Phil Allison, previously of KCG Holdings Inc., to lead the automation of its fixed-income business.
Gorman, in a February interview with Bloomberg, said he expects AI’s influence on the bank to expand.
“How will it reshape the M&A advantage our bankers lend to global cross-border transactions? I would say relatively little,” he said. “How will it shape the potential for more electronic trading aided by various algorithms in our fixed-income businesses? I think quite a lot.”
This article was provided by Bloomberg News.