Fri, Jun 30, 2017 - Page 9 News List

Humans wanted: Hedge fund bosses make the case for people

While computers are better at handling preliminary data checks, people are still better at cross-referencing irregularities and making decisions based on human sentiment, Wall Street managers say

By Saijel Kishan  /  Bloomberg

Humans will not be obsolete in this lifetime.

That is what a quartet of money managers have posited as new technologies rewire finance, threatening to supplant the industry’s rank and file.

Winton, a US$30.6 billion hedge fund that has used algorithms to trade for two decades, told clients that people must still make the big decisions.

CQS chief executive officer Michael Hintze said computer models can spot market anomalies, but rarely provide answers.

Weiss Multi-Strategy Advisers chief investment officer Jordi Visser said humans still have the upper hand when it comes to recognizing patterns, while DoubleLine Capital chief executive officer Jeffrey Gundlach said he is betting people will prevail.

“Despite the immense power of modern computing, it is neither advisable — nor even possible — to dispense with humans entirely,” Winton — founded by David Harding, who earned a degree in theoretical physics before going into finance — wrote in its letter to clients this month.

Legions of finance workers are wondering how many years they will last as banks and money managers experiment with technology, looking to someday automate everything from securities underwriting to portfolio management.

It comes amid a crescendo of warnings from the likes of Federal Reserve Chair Janet Yellen and software billionaire Bill Gates that big data and machine learning might unleash a wave of automation on the US.

US Secretary of the Treasury Steven Mnuchin has said that automation is not on the administration’s radar.

Wading into the debate last week, Gundlach said he does not believe in machines taking over finance.

His advice for beating them is simple: “Work hard.”

There are big tasks at hedge funds ripe for automation, such as performing large-scale, recurring calculations for assessing risk across portfolios, Winton wrote in its letter.

However, according to the firm — whose 450 employees include astrophysicists and other scientists — computers are far from ready to independently make investing decisions.

Instead, people will be running software at every stage of the process, it said.

Winton managers design and choose algorithms that are ultimately approved or rejected by its investment board, and while computers are better suited to handle early stages of checking data, once anomalies are flagged, humans are better at cross-referencing the irregularities against other sources to draw conclusions, the London-based firm said.

“The notion that human involvement in investment management should, or even could, be fully automated is wide of the mark,” said Winton, which returned 1.3 percent this year through last month on its main fund.

MAIN STREET

Finance is typically not the first place economists and consultants point to when predicting the most severe job losses.

A report by CB Insights estimated that 25 million US jobs might be eliminated by automation across seven “high risk” industries with relatively low regulation and predictable work environments, like retail floors and restaurant kitchens.

Wall Street did not make that list.

However, there is a lot of news troubling financial professionals.

Billionaire trader Steven Cohen is experimenting with ways to automate his best money managers.

Goldman Sachs Group Inc is developing systems to eliminate hundreds of hours of human labor in initial public offerings, and JPMorgan Chase & Co is using machine-learning techniques to take over work from lawyers.

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