Trust robots with money, not 'emotional' humans

David Siegel, co-founder of Two Sigma.
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David Siegel, co-founder of Two Sigma.

It might soon be time to hand your money to the robots.

"The day is coming where you will be able to speak to an [artificial intelligence] system and get substantially better advice than any human advisor could give you. I don't think this is that far away," said David Siegel, co-chairman of hedge fund firm Two Sigma Investments, said Monday at the Milken Institute Global Conference in Los Angeles.

"Even the most professional money managers are emotional; they are people after all," said Siegel, who helps run one of the largest hedge funds in the world that uses powerful computer programs to invest. Two Sigma manages about $25 billion.

"There's hope that more algorithmic approves, more robo, or AI approaches, would de-emotionalize many of these decisions, reducing the chances that everyone, in fear, would pile into the same thing," he said, citing the market panic in 2008.

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While average investors can turn to robots, Siegel warned that trying to invest like a machine by oneself doesn't make sense.

"Because of big data techniques and the power of computing, it becomes harder and harder for a small player who doesn't have the resources to harness the vast amounts of available information to make investment decisions," Siegel said in a nod to the computing power of his own Two Sigma and other so-called "quant" or "systematic" hedge funds.

"It's quite hard," he added, "for a retail person to compete with an institution that is collecting terabytes of data every day from around the world and using high performance algorithms … to make hay out of all that information."

Hedge funds like Two Sigma that rely on sophisticated computer algorithms to invest have been producing the industry's best returns over the last year.

Funds managed by ISAM, Cantab, AHL, Systematica and others produced double-digit gains over the first three months of 2015, for example.

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