(Bloomberg) -- As a quant, hedge fund manager Leda Braga hired her first Ph.D. in artificial intelligence back in 2008 to build out computer-led trading strategies. Lately, she’s needed a new type of computer scientist.
In the past two years, the $15 billion money manager has recruited a team of “feature engineers” to examine an ever-growing slew of data that the firm has hoovered up for hints of where its traders can find profit.
Systematica Investments, one of the largest female-led hedge funds, has assembled a crew of six researchers to introduce and format new information sources for its investing. They are integrating a fresh data set each week, including some as unconventional as AI that extracts sentiment from the speeches of chief executives and policymakers. The team recently considered investing in a program that evaluates tone of voice.
“A data set 10 years ago was a time series,” Braga, founder and CEO of Systematica, said in an interview in Sydney. “No longer. A data set is anything now, a collection of images, databases of things. What’s the X-axis of that? I don’t know.”
Systematica isn’t the only investment firm to turn to alternative data to trade in an industry where breakthroughs in machine learning are providing fresh challenges as well as opportunities. In addition to boosting productivity, AI has also led to an explosion of new data that requires even more staff.
The outlays also illustrate a squeeze on the hedge fund industry as clients become more averse to management fees while costs of specialist staff and systems swell.
And it’s not just the experts, Braga said. Entry-based salaries for the Jersey, UK-based firm’s graduates have more than doubled in the past five years, she said.
The quant strategies run by Systematica have had a mixed performance so far this year. Among its three trend-following programs, one has gained 4% while the other two are down about 3% to 4%, Braga said. Its multi-strategy program returned more than 7% as of mid-September, she said.
The firm, spun out of Michael Platt’s BlueCrest Capital Management in 2015, is best known for developing trend-following trading algorithms. It applies them across the world’s most liquid global asset classes including stocks, debt, currencies, metals and agricultural commodities. The firm’s flagship BlueTrend fund had a blowout year in 2022 thanks to global shocks that gave it new trends to pounce on.
Less than five years ago, all this data wrangling was part of “alpha research,” or the firm’s investment staff, Braga said. “Nowadays the data is so much greater in volume and so specific” that it no longer makes sense for it to be in their domain, she added.
The intensity of information has consequences for the industry, pushing funds that run quant strategies to get bigger or get out, Braga said.
“The future of the investment industry is all technology-based,” she said. “At the end of the day, how much can you do at a discretionary level that is scalable?”
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