A hedge fund focused on artificial intelligence has raised $1.5m from a group of investors led by a founder of Renaissance Technologies, one of the world’s biggest money managers, underscoring the growing interest in applying cutting-edge technology to markets.
Numerai was founded by South African mathematician Richard Craib last year and uses a monthly “tournament” for data scientists to develop models using AI fields such as “machine learning” to predict stock market movements, with the best predictions winning money from the company.
Unlike Quantopian, a similar embryonic “crowdfunded” hedge fund, San Francisco-based Numerai provides data scientists and computer programmers with encrypted financial data.
They then use the data to independently develop their own models scouring for patterns and submitting their results to the hedge fund, which then synthesises the best ones into stock market trades. Quantopian members submit completed trading algorithms.
“It’s just a clean data challenge. We manage all the irritating things like the fund structure and the trading,” Mr Craib said. “They can build whatever model they want and simply submit their predictions.”
The Numerai investment group was led by Howard Morgan, a former computer science professor and one of the founders of Renaissance Technologies, the immensely lucrative but secretive science-powered hedge fund.
“Richard has a new take on how to use crowdsourced artificial intelligence in a very innovative way,” Mr Morgan said. “The homomorphically encrypted data means it’s just abstract data. It could be weather data or pharma data, it just happens to be financial data.”
Some of the investors — who include Naval Ravikant, a co-founder of AngelList and a seed investor in Uber, and Playfair Capital, a London-based venture capital group specialising in artificial intelligence — also put an undisclosed sum into Numerai’s hedge fund, which otherwise remains closed to outside investors.
“We have so much to do on the technology side and on the tournament design, so I want to focus on that for now,” Mr Craib said. But with typical Silicon Valley understatement he added that eventually “I want to manage all the money in the world”.
Numerai has also appointed Peter Diamandis, the chairman of the X Prize Foundation and the Singularity University, to its advisory board. He will join Vitaly Shmatikov and Arvind Narayana, two machine learning experts at Cornell and Princeton Universities respectively, Kaggle board member Ash Fontana, and Norman Packard, a chaos theory physicist and founder of The Prediction Company, a cutting-edge hedge fund in the 1990s.
The hedge fund, which was started in October last year, initially traded only using Mr Craib’s own model, but now mostly uses the predictions produced by the contestants at its tournaments, which started running in December.
“My model was doing very well, which is why I felt confident I could start a hedge fund, but within 10 days of the first tournament I had an even better model,” he said. “We now have 80 people with better models than me, which is depressing, but it’s good for the fund.”
The current leader on Numerai’s tournament board is a user called “NCVSAI”, who works in genomics and biostatistics, according to Mr Craib. He has earned $5,563 since starting to submit predictions earlier this year, but as the hedge fund grows Numerai intends to ramp up the rewards.
This is an article from FT https://www.ft.com/content/b743fa8e-034a-11e6-af1d-c47326021344
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