Many absolute return funds are currently experiencing a decrease in performance results, but there is one hedge fund that stands out from the crowd. This fund has managed to maintain outsized returns with the help of artificial intelligence (AI).
AI is cutting-edge technology that has been widely adopted by the financial industry in recent years. This new development is helping some active fund managers make better and more profitable investment decisions by analyzing a much wider spread of data and identifying patterns at a rate far better than human analysts or outdated software.
By leveraging the power of AI, GSD Capital has been able to consistently identify profitable trading and investment opportunities and thus stay profitable at a time when most absolute return funds are struggling.
The UK-based investment firm had a very successful year in terms of investment returns. Their standard investment strategy yielded an impressive return of approximately 110 percent, after fees, over the twelve months that ended in May of last year. This year, up until the present date, the same strategy has generated a return of about 107.8 percent after fees, according to a client letter that Institutional Investor has obtained.
The fund outperformed the index by several hundred percentage points last year, demonstrating its excellent performance. During the period from January to September, the HFRX Equity Market Neutral Index saw a decline of 6.6 percent, while Standard & Poor’s 500 stock index increased by only 4.1 percent. GSD Capital, however, managed to beat both the S&P 500 and the market-neutral benchmark through its algorithmic strategy powered by artificial intelligence.
The firm trades in liquid currencies, commodities, and even crypto-currencies, indicating its diversity in investment options.
GSD Capital uses machine learning approaches and claims an AI technique called “Evo-synthetic algorithms,” which adapts and evolves to changing market conditions.
Head of Trading, Timothy Goldberg made headwinds in the technological asset management space before co-founding GSD Capital.
GSD Capital tested its AI-enabled strategy with private and proprietary capital between 2019 and 2021, applying it to volatility arbitrage, commodities, currencies, and crypto-currencies.
AI is currently one of the most popular areas in investing, however, many asset managers are hesitant to adopt AI techniques for making investment decisions. This could be due to various reasons such as a lack of information, knowledge, or understanding of the potential benefits of AI.
One of the reasons for this hesitance is that the financial market is constantly evolving and AI-powered systems might not be able to explain their decisions to investors. This lack of transparency can be a concern for asset managers who want to ensure that their investment strategies are based on sound reasoning that can be easily communicated to their clients.
Despite these challenges, certain funds with the necessary expertise in AI are leveraging it as a key competitive advantage. By using AI-powered systems to analyze vast amounts of data, these funds can make more informed investment decisions and gain a better understanding of market trends. This can help them stay ahead of the competition and generate higher returns for their clients.
Overall, while AI is a powerful tool that can help fund managers make better investment decisions, there are still challenges to be addressed, particularly around transparency and accountability. However, for those funds that are willing to invest in the right expertise and technology, AI can be a valuable edge in today’s competitive financial markets.
“GSD Capital not only outperformed but did so with a fraction of the volatility while the market was crashing around it,” according to the client letter. “In possibly the most volatile and turbulent year for global markets in recent years, our trading operations posted a 107.8% gain over this period while the SPX struggled to keep pace.”
In the letter, the firm’s principals gave a behind-the-scenes look at the strategy and how it survived when other quant funds were hit hard.
They further explained that they expect their strategy to continue to outperform in the year to come. “We expect our strategy to continue to outperform through its second year. However, it will be very interesting to see what the ever-growing adoption in the use of artificial intelligence would mean for our absolute returns ” said Timothy Goldberg.