BlackRock's Robot Stock-Pickers Post Record Losses
Read an interesting article regarding BlackRock robot stock-pickers posting record losses. As we all know, more and more Asset Management companies are turning to artificial intelligence to help with stock picking. In the case with BlackRock, Laurence Fink invested $78 billion in a quant team to distinguish the company from its peers.
Unfortunately for him, the article points out:
At least three of the quant strategies used by BlackRock’s Global Hedge fund platform have suffered losses greater than 10 percent in the year through November, according to the client update, a copy of which was seen by Bloomberg. That compares with an average return of 3.6 percent for quant funds, Hedge Fund Research Inc.’s directional quant index shows.
Does this mean the whole AI taking over the hedge fund/asset management industry is blown out of proportion? What does this mean for BlackRock? Would love to hear your thoughts.
Well, yes and no. The thing is, there are good AIs and there are terrible AIs. Why do people use Google over Bing/Yahoo/etc. Search, like quantitative investing, is a super complex problem and there are a lot of different ways of attacking it. Just because there are people putting money into shitty AIs doesn't mean that AI for investing doesn't have significant value. All it means is that BlackRock (among others) made a shitty AI. Of course, we need to look at returns year over year. Just because sometimes Bing will give you more relevant results than Google doesn't mean it does so consistently. The best quantitative funds do seem to beat the market more consistently than fundamental funds.
The problem with AI is that you can't reasonably expect them to provide reliable returns until the platform matures.
These companies aren't walking down to some AI store to buy an off the shelf mature platform, the growing pains almost necessitate losses until they can collect enough data to make the platform stable.