RIP Human Traders: Tudor's 'Paul-In-A-Box' A.I. Hedge Fund Posts Tremendous Returns

Eight months ago, Bloomberg reported that machine learning, according to Gartner Inc.’s hype cycle for new technologies, was at the "peak of inflated expectations" and heading to the "trough of disillusionment."

Around the same time a number of A.I.-driven investment funds and ETFs began to pop up, seemingly confirming the hype cycle.

In October 2017, the first Artificial Intelligence-driven ETF was launched:

“EquBot AI Technology with Watson has the ability to mimic an army of equity research analysts working around the clock, 365 days a year, while removing human error and bias from the process.

And while hedge funds like Bridgewater have successfully automated many of their trading strategies and Renaissance Technologies, a quant fund founded by former military code-breaker Jim Simons, has been a pioneer in using machine-learning techniques for decades while building an enviable investing track record; probably the best known of these new funds was a push by Paul Tudor Jones to build an algorithm that would mimic his analytical process

Back in the 1990s, Paul Tudor Jones assigned a team of coders to a project dubbed “Paul in a Box.” The effort sought to break down the DNA of the hedge fund manager’s trading - how he sizes up markets and generates ideas - to train a computer to do the same.

The code created then was upgraded many times and is still used at his firm, Tudor Investment Corp. But it never took over.

Again and again, programmers had to feed in new types of data to mimic the changing price signals that Jones, famous for predicting the Black Monday market crash 30 years ago, zeroed in on, according to people with knowledge of the project. Even then, the machine couldn’t capture intangibles like his gut instincts and conviction, as well as the market’s uncertainties.

Ultimately, Jones remains the final decision-maker for trades - not the box.

Since then, things have not quite worked out how Gartner - and likely numerous human traders - would have hoped.

First things first, the AI ETF - that was designed to end the careers of 100s of analysts - has outperformed the market dramatically since inception...

Whether this is pure momo-chasing in the algo is unclear - but is notable that on the downside swing in February, the ETF did not underperform dramatically.

But it is the success of Paul Tudor Jones' AI Fund that stands out, as Bloomberg reports, Tudor Investment Corp.’s Dharmesh Maniyar posted a 7 percent gain last month in his new fund that uses machine-learning algorithms to help make macro trades.

The performance brings returns for his Tudor Maniyar Macro fund this year to about 13 percent, according to people with knowledge of the matter - well ahead of the S&P 500. The fund reportedly made money on European fixed income and global currencies in May.

Tudor had raised about $300 million for Maniyar’s fund, which started trading in October and is the firm’s only macro fund run by a sole manager.

But interestingly, Maniyar, who has a doctorate in machine learning from the U.K.’s Aston University, got off to a poor start, slumping 8 percent in the first three months of trading last year, one of the people said - which mimics the same major underperformance seen early on in the AI ETF above.

Just like humans, perhaps the machines just needed to get used to the new desk and new normal.

For now, it appears that just as retail investors piling into passive investment vehicles is killing the active manager, so the same active manager is now being trumped by Johnny 5 - time to start learning a new skill (like horse and buggy repair?).


LiteBeeer Number 9 Thu, 06/07/2018 - 12:08 Permalink

Don't you people know that Satan hates you, because you were created in the image of God? He is making you to destroy yourself. You perish because you rejected the love of truth. You adhere the liar Apollo/Shiva/Baal/Moloch/Allah, the destroyer. Repent and ask Jesus for forgiveness and you shall be saved.

In reply to by Number 9

halcyon LiteBeeer Thu, 06/07/2018 - 13:53 Permalink

You've got it all wrong, boy-o. Jahwe is the demiurge - a deranged middle-man. 

Do not bow to any source trying to pull authority over you. 

They are all fake.

Write your own gospel, live your own myth.

Everything else is just a mind-game, a program running you.


In reply to by LiteBeeer

Occams_Razor_Trader Number 9 Thu, 06/07/2018 - 15:28 Permalink

There are those discretionary traders that have a feel- and they can prove their feel is right with long term gains- but the biggest problem why most traders fail is emotions - and that's what system trading is all about removing emotion from the equation.  Renaissance Capital is earning what.......... 25% a year for the past 20 years?????


But it's never that easy- ALL the turtles had the same rules- and what............... 20% of them lived till the end?

In reply to by Number 9

Masher1 Thu, 06/07/2018 - 12:33 Permalink

The fact that the regulators are allowing this sort of thing is a blaring siren signalling the RIGGED state all financial systems are working today, You have to be 'In on it' or 'Out of your mind' to be involved...

Ignore This Thu, 06/07/2018 - 12:48 Permalink

The AI traders were trained to make consistent positive earnings and that's what they did. They figured out that you make consistent positive earnings in a rising market. You don't need fundamental knowledge to make money in a rising market and all the AIs know is the price of individual assets over time. The AIs learned that it is easier to solve the problem of how to control the prices than it is to predict them. They found that if they bought and sold the same assets to each other, they could increase the price of those assets and the market as a whole. Like all similar schemes, this works great until it doesn't. What will those AI traders that were coded and trained in a bull market do when it has a 30% correction? No one knows.

hola dos cola Ignore This Thu, 06/07/2018 - 13:33 Permalink

The AI's will take profit on the way up. At a certain point they'll lack 'mass' to drive prices up further. Then the AI's will ask their controller if it's okay the dump the rest, which is a signal for him to go short (and inform his buddies) before he gives the 'go ahead'.

It's okay. These people donate tremendous amounts during election campaigns. MAGA.

In reply to by Ignore This

any_mouse rlouis Thu, 06/07/2018 - 14:36 Permalink

I like how the coders "trained" the program. Used to be called "coding".

Admiral Hopper "trained" early "AI" by moving jumper wires around. Then she developed COBOL and used a card punch.

Coders back testing with spreadsheets, no doubt.

A guy with the middle name "Tudor". No, he's not connected...

If Madoff had claimed to have an AI running his MadeOff fund would he still have gone to jail?

In reply to by rlouis

Lie_Detector Thu, 06/07/2018 - 12:59 Permalink

One day EVERY human, including the "coders", the managers AND the CEO will not be needed. AI will run the whole company. Humans will only be needed to consume. The trouble with that is people need money to purchase things and since none are needed in the companies people will have to revolt and destroy the machines or starve. Ultimately if machines control all the markets the best AI will control everything. 

any_mouse Lie_Detector Thu, 06/07/2018 - 14:55 Permalink

They create the "money" from Public Debt. They have been doing this for a long time. Whether one has a paycheck and an EBT card.

People are not revolting en masse.

Their protests are silenced by other means than the Gulag. Technology has replaced the need to have large scale political prisons.

When the People are allowed to revolt it will be to label them as "terrorists", then kill the People using state violence to protect "their Freedoms".

One of the reasons to have an ongoing War on Terror and the ongoing War on Drugs (but not BigPharma drugs).

Ongoing Wars on the People.

In reply to by Lie_Detector