- A recent survey conducted by research firm Greenwich Associates found that only 23% of hedge funds and asset managers are currently using artificial intelligence on their trading desks.
- That's compared to 63% of banks and 60% of trading venues using the cutting-edge tech.
- As hedge funds and asset managers face shrinking fees, the cost required to internally build AI tools is viewed as too high.
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There's no denying the impact artificial intelligence will have on Wall Street, but one portion of the industry has been slow to adopt the cutting-edge technology.
Only 23% of those on the buy side — meaning firms such as hedge funds and asset managers — said they are currently using artificial intelligence in trading in a recent survey conduct by research firm Greenwich Associates. By comparison, the majority of respondents from banks (63%) and trading venues (60%) said they were already using the tech.
And while 31% of respondents at hedge funds and asset managers said they plan to incorporate the tech within two years, 46% currently have no futures plans for using AI.
All of this comes at a time when AI is far and away considered the technology that will disrupt Wall Street the most in the coming years. More than half of respondents (56%) said AI will be "very disruptive" to the industry. Cloud computing was the second-highest choice with 33% picking it to be "very disruptive."
What's stopping hedge funds and asset managers from diving into the tech that nearly all agree will be important boils down to the amount of investment it requires, the report said. With fees continuing to shrink, buy-side firms are happy to outsource AI techniques to vendors, as opposed to spending time and resources trying to develop a tool of their own that might not pan out.
"The ability to easily tap into new, fully-vetted tools through a third-party provider alleviates this problem considerably, reducing the risk while still allowing the asset manager or hedge fund to put cutting-edge technology to work on the trading desk," the report said.
It's also worth noting the area firms are currently seeing AI have the biggest impact is via algorithmic trading (41%), something many hedge funds don't see as a differentiator. Meanwhile, areas like risk management (13%) and the generation of trade ideas (6%), which are key to many firms, haven't had huge traction yet.
To be clear, not all hedge funds are keen to pass off the development of AI tools and techniques to others. Funds like Renaissance Technologies and Two Sigma are arguably more sophisticated than anyone else on Wall Street when it comes to using AI.
"On one hand, the lack of AI sophistication on trading desks is a bit disappointing, given the level of talent in financial services and the billions of dollars capital markets participants and service providers spend on developing technology," the report states. "On the other hand, the world of trading has only scratched the surface of the true power of AI."