How hedge funds Citadel, WorldQuant, and Freestone Grove are using AI
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- Executives from Citadel, WorldQuant, and Freestone Grove spoke at the Milken conference about AI.
- Umesh Subramanian, Citadel's chief technology officer, said AI helps them leverage humans.
- They warned that funds need to ensure that people are using their tools for their intended purposes.
Hedge funds have always been quick to adapt to the latest technology.
Given the industry's ultracompetitive nature and large budgets of the biggest managers, big-name hedge funds have built out machine learning and artificial intelligence capabilities for years.
The jump in AI's applications in recent years, though, still has them excited.
Umesh Subramanian, the chief technology officer of $65 billion Citadel, said that applying AI to discretionary investing is where it's getting interesting, as investors and analysts are bombarded with documents, news, filings, and data to digest.
"The surface area of the amount of information that you really want to consume is very large," for the average investment professional at his firm, Subramanian said, and AI gives them leverage to do more.
"We fine-tune our investment workflow," he said, and mentioned that Citadel's billionaire founder, Ken Griffin, uses ChatGPT.
To speed up decision-making, Subramanian said that building intuitive tools like chatbots that can be talked to are important because people generally prefer asking questions naturally. The firm is also hiring data scientists and AI professionals to embed them in the fund's various groups to optimize various investment workflows.
Andreas Kreuz, WorldQuant's deputy CIO, said the firm was using AI to expand the data it can bring into its models since it can restructure data from images and audio.
"What excites us is beyond the low-hanging fruit," Kreuz said.
Still, Subramanian, Kreuz, and Freestone Grove Cofounder Daniel Morillo warned that the tech can be misused.
"You need to teach your people to still pay attention," Morillo said, adding that his firm does more work on thinking about how people use a tool than on building out new AI capabilities.
Freestone Grove, the fundamental equity firm he launched with former Citadel executive Todd Barker in 2024, also wants to make sure it retains its own views, Morillo said. This means the firm is being intentional about not "killing off" any edge its investors get from doing the grunt work themselves.
"It's super important to be highly intentional about how you're using the tools," he said.
Kreuz said "we don't think AI is replacing human judgment" and wants employees to question the "black box."
"It can produce a tremendous amount of noise instead of signal," he said.
Investors' judgment will still be the ultimate differentiator, Subramanian said.
"While I think there's going to be a lot of leverage in the system with AI as a tool in the toolbox, I don't think it changes what is making the decision."