Hedge fund bosses make the case for humans

NEW YORK: Humans won’t be obsolete in this lifetime. That’s what a quartet of money managers have posited in recent weeks as new technologies rewire finance, threatening to supplant the industry’s rank and file.

Winton, a $30.6-billion hedge fund that’s used algorithms to trade for two decades, told clients that people must still make the big decisions. Michael Hintze, who runs another major fund, said computer models can spot market anomalies but rarely provide answers. Jordi Visser, investment chief at a third firm, said humans still have the upper hand when it comes to recognising patterns. Billionaire bond manager Jeffrey Gundlach said he’s 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’ll last as banks and money managers experiment with tech, 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 may unleash a wave of automation on the US. Wading into the debate last week, DoubleLine Capital Chief Executive Officer Gundlach said he doesn’t believe in machines taking over finance. His advice for beating them is simple: “Work hard.”

Indeed, Winton wrote in its letter, there are big tasks at hedge funds ripe for automation, such as performing large-scale, recurring calculations for assessing risk across portfolios. But according to the firm, whose 450 employees include astrophysicists and other scientists, computers are far from ready to make investing decisions independently.

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