Robots Taking Over Wall Street

Like a 1950’s science fiction movie (yeah, check it out) where ants, spiders and other ‘creatures’ got to giant size because of radiation (atomic bombs) and threatened cities, today robots are “eating” the financial sections of major metropolises. No matter what, the artificial intelligence folks are taking over the trading and investment management sectors from humans. Not to scare you active managers, but ITS OVER. Even if you hang in there, the fees will be so low that you could be in a soup line with a $100 Billion AUM. And, unlike in the 1950’s movies, the military can’t help.

(Bill Taylor/CEO)

The world’s five biggest hedge funds today all use systems-based approaches to trade financial markets. This computer domination of the richest corner of the investment management industry has been building steadily for years, but it has accelerated together with the problems that have hit some of the most prominent human hedge fund traders.

The only one of the five biggest hedge fund firms that doesn’t run pure quantitative trading strategies is Bridgewater Associates, which manages $160 billion. Man Group, the world’s second-biggest hedge fund firm, manages $41 billion in quantitative strategies, about half of its total assets under management. Quantitative trading hedge funds Two Sigma Investments and D.E. Shaw each manage about $40 billion. Renaissance Technologies, another quantitative trading firm, manages at least $36 billion.

There are different ways to look at the numbers. D.E. Shaw, for example, has $14 billion in long-biased strategies. Still, with the struggles of billionaire Dan Och’s hedge fund, where human traders now oversee $33.7 billion as opposed to $48 billion not so long ago, machines now own the top of the hedge fund world, at least in terms of biggest fund firms.

Last week BlackRock, the world’s biggest asset manager, said it was revamping its stock investing business, further embracing computer trading and firing some 40 portfolio managers and other employees. The man overseeing the changes to BlackRock’s equities operations, Mark Wiseman, told The New York Times that “the old way of people sitting in a room picking stocks, thinking they are smarter than the next guy — that does not work anymore.”

The king of factor investing, Clifford Asness, is one of the biggest new billionaires produced on Wall Street in years. The former Goldman Sachs quantitative trader is worth an estimated $3 billion. Two of his partners, David Kabiller and John Liew, are each worth $1 billion. Their firm, AQR Capital Management, now manages $185 billion and is one of the fastest-growing money management firms on Earth.

The only firm that has produced bigger known personal fortunes on Wall Street than AQR in recent years is Two Sigma Investments. The assets of the firm have grown from $5 billion seven years ago to $41 billion today. Two Sigma’s founders, John Overdeck and David Siegel, are now worth $4.8 billion each, more than hedge fund legends like Paul Tudor Jones and Stanley Druckenmiller…”

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