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Machines taking over hedge funds despite lack of evidence they outperform humans

Based on a biannual Credit Suisse survey, it appears that a comeback is in store. The firm said 81 percent of investors it surveyed said they would likely make allocations to hedge funds during the second half of 2017, an increase of 8 percent from the mid-year survey last year. Of those investors surveyed, almost 60 percent said they plan to increase allocations to quantitatively focused strategies over the next three to five years.

Quantitatively focused funds have doubled their assets since 2009 to nearly $1 trillion – or about one-third of the industry’s total assets – according to Jefferies.

As non-quant assets have ticked down, those funds using more of a scientific approach have skyrocketed, a trend that is likely to continue.

To be sure, just because a hedge fund has a quantitative strategy does not guarantee returns. A recent Barclays report showed that while investors perceive quant strategies outperform those that are less technology-driven, there’s no research that would indicate that is actually the case.

In the first half of the year, so-called systematic diversified strategies, or those that have investment processes managed almost entirely by computers and have very little human influence over portfolio management, underperformed other strategies, according to new data by Hedge Fund Research Inc.

The HFRI Macro: Systematic Diversified Index declined 2.8 percent during the first half of 2017, while the broader industry gained 3.7 percent.

While the headcount, assets and interest appear to be growing, it doesn’t appear that the returns are following suit.

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