BlackRock isn’t the only Wall Street investor laying off human stock-pickers and replacing them with robots.
The world’s biggest money manager on Tuesday announced that it would cut more than 40 jobs, replacing some of its human portfolio managers with artificially intelligent, computerized stock-trading algorithms.
Research, after all, has shown that active stock pickers generally underperform the wider stock market, leading customers to balk at the high fees those managers charge. Investors are increasingly seeking cheaper options such as exchange-traded funds, some of which are managed by computers—a trend that helped push BlackRock’s assets under management above $5 trillion for the first time recently.
The layoffs due to automation are an industry-wide shift. By 2025, financial institutions will reduce their human workforce by 10%—resulting in roughly 230,000 fewer heads—as computers take their place, the financial services consultancy Opimas estimates in a recent report. Of those displaced jobs, 40% are expected to come from the money management space.
It’s not just Wall Street, either: PwC warned last week that automation could replace 38% of all American jobs by 2030.
BlackRock (BLK) and Wall Street’s motivation for the changes is clear: Replacing humans with artificial intelligence will lower their ratio of costs to profits by 28%, according to Opimas.
Even celebrity stock-pickers who made their name making the right call at the right time are turning to AI for consistent returns.
After cutting 15% of his workforce in mid-2016, veteran hedge fund manager Paul Tudor Jones introduced computer-driven tools that would imitate trades by the firm’s best managers, according to Bloomberg. Jones is also incorporating machine-learning technology in an effort to expand the firm’s computerized trading capabilities.
Even the family office of legendary trader Steven Cohen, Point72 Asset Management has been trying to use computer algorithms to find what exactly made his most profitable trades work so well, in the hopes of replicating that success, according to Bloomberg.
Meanwhile, the founder of the world’s largest hedge fund, Ray Dalio, has been investing in AI technology related to trading, as well as trying to automate most of his processes for managing his firm Bridgewater. That could effectively keep Dalio’s unique management style in place at the fund, Bridgewater, even if the man himself has recently stepped back from the top role.
Yet while AI is becoming increasingly trendy for all types of hedge funds, Cohen and Dalio are later to adopt the technology than some other tech-savvy investors. Quant firms including Two Sigma and Renaissance Technologies have been using artificial intelligence to automate some of their trading operations for years, and are using computers to glean new insights into the market.
Two Sigma is reportedly experimenting with deep learning, a process that mimics the activity of neurons and was used to produce Amazon’s “Alexa” robot, as well as Facebook’s facial recognition system. And Renaissance Technologies, for one, is seeking to patent an algorithmic invention that would prevent high-frequency traders from front-running its market orders.
Besides stock trading, financial firms such as J.P. Morgan (JPM) are using AI to make the job of complying with myriad financial regulations easier. IBM (IBM), for example, acquired Wall Street compliance firm Promontory Financial Group late last year in a push to bring the tech company’s AI platform, Watson, to banks and hedge funds.
So while it might be too early to predict the end of human stock-pickers, robots may quite literally give them a run for their money.