The Growth and Performance of Artificial Intelligence in Asset Management

This paper examines AI adoption in asset management and its investment implications. We document that AI-driven investing is concentrated among hedge funds, particularly those employing macro strategies. AI funds exhibit greater alpha comovement and are launched by investment advisers facing stronger performance incentives. These funds significantly outperformed non-AI hedge funds on a risk-adjusted basis, but their outperformance declined over time and disappeared with the growth of AI-driven investing. Nevertheless, AI funds continued to outperform sibling funds managed by the same advisers. Our findings highlight both the alpha-generating potential and the limitations of AI as a source of investment performance.