Hedge Fund Strategies: The Incorporation of AI

This article was written by Hugh Camiener, Analyst at I Know First. Bachelor of Arts candidate at Columbia University.


  • Hedge funds are a type of investment that uses collective funds to generate high returns for their investors. 
  • Currently, there are over 10,000 different hedge funds who manage around $3 Trillion in assets over a multitude of different sectors. 
  • AI Can give hedge funds a competitive advantage, analyzing numerous amounts of data beyond human comprehension. 
  • Hedge funds incorporating AI had returns of 34% over three years, in comparison to 12% for those who did not. 
  • I Know First’s Algorithm is perfectly suited for large financial institutions like hedge funds. 

What is a Hedge Fund?

Hedge funds are a type of investment that uses collective funds to generate high returns for their investors. A hedge fund is an investment partnership between a manager and their investors. Typically, only accredited investors, people with high net worths, are able to engage in these riskier investments. Hedge funds may be intensely managed and use leverage in order to generate extreme returns. Managers of hedge funds can basically invest in anything from stocks to companies to land, and this can occur in both domestic and international markets. Hedge funds also generally face less regulation by the SEC than mutual funds or other types of investments. Currently, there are over 10,000 different hedge funds who manage around $3.2 Trillion in assets. 

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Hedge Fund Strategies: AI

In an incredibly competitive market, with hedge funds vying to give their investors higher rates of returns, AI can give hedge funds an advantage in a countless number of markets. In fact, companies that utilized AI produced returns of 34% in three years, in comparison to 12% for the global hedge fund industry. With an ever-growing amount of data for a particular market, AI technology has the ability to better adapt to unforeseen scenarios, like the coronavirus. Even with something so obscure, machine learning allows for the AI to collect information from newspapers, social media, and to constantly track trends in the market. But, hedge funds need to utilize different AI systems to gather higher rates of return: if everyone had the same AI system nobody would benefit. Some hedge fund companies have started to use artificial intelligence in order to trade stocks without any more intervention, instead of just typical computer models. Hedge fund managers need to embrace AI to keep up with the competition; if they do not, they will pander out. With deep learning, AI can train networks to recognize patterns in a multitude of forms: audio, images, and text. Even though past data may not predict future returns, AI is able to compare current scenarios to previous market performance. With constantly learning machines, AI will continue to gather more information and continue to become even more powerful, processing data beyond human comprehension.

Machine Aided Hedge Fund Strategies Dominate the Industry

Of the top 10 highest grossing hedge fund managers in the world, the top three all utilize computer systems in their investments. Only four managers still rely primarily on human driven analysis.

Hedgefunds AI ranking table Outside Insight

Bridgewater Analysis, who ranks number two on the list above, and is the largest hedge fund in the world,  built an algorithm based on their employees’ brains. By rating each employee constantly based on their attributes, it allows for radical transparency and understanding in the workplace when making prominent decisions. But what of companies who do not have their own AI system yet? How can they keep up in the data driven market? 

I Know First’s AI System


The technology of our algorithm is rooted in artificial intelligence, machine learning, and incorporates elements of artificial neural networks and genetic algorithms through which we analyze, model, and predict the stock market. The algorithm is adaptable, scalable, and features a Decision Support System (DSS) to optimize the information produced by the years of data inputted. Our algorithm is designed for hedge funds, as well as banks and other large financial institutions. The algorithm is currently tracking and predicting over 10,000 financial assets, generating daily market predictions for stocks, commodities, ETF’s, interest rates, currencies, and world indices for short, medium, and long term horizons. I Know First’s algorithm is perfectly designed for hedge funds and financial institutions who are looking to incorporate AI.  

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