"Young quants think LLMs are going to build their portfolio for them."

Large language models are being implemented incrementally in finance everywhere you look, and quant finance is no exception. There's a limit to how useful it can be, however, and at the Quant Strats 2024 conference in London today, some senior quants said they are wary of juniors being too reliant on the technology.

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Florian Ielpo, head of macro at Lombard Odier Investment Management, said there's a "danger with the AI mantra." He thinks young quants get "the impression that they don't need to learn finance, or economics, or how to build a portfolio... that the machine will do it all for you." Ielpo advised against this; implementing AI can be beneficial, but he said it's all about "finding a balance."

Gen AI's ability to generate alpha is seen as particularly questionable. Verition MD Marc Vesecky, declared that he's "very skeptical that you can use LLMs in their current state" to find alpha, but admitted the fund is "at the very beginning of looking" to implement GenAI in the fund. Razvan Remsing, director of investment solutions at systematic quant fund Aspect Capital, said we're "quite a while away from finding alpha signals driven by AI."

Tim Mace, head of data and machine learning at Man Group, said the main uses of AI in the industry are "focused on productivity, not so much on alpha generation or portfolio management." The fund has been more progressive than most regarding LLMs, building its own chatbot ManGPT. 

Juniors may be becoming too reliant on the technology already. Mace said the fund "put ManGPT in the hands of some interns over the summer, and they managed to blow the budget pretty quickly."

Young PMs of today have already faced criticisms that they "know nothing about portfolio management," although this is more due to the nature of "pod shops," than the fault of the young PMs themselves. As LLM use continues to grow, that blame could shift.

Funds may face a problem, however: not using LLMs could impact your ability to recruit top young talent. A report from AI firm Blueflame said that a third of interns at one major private equity firm said they would "reconsider their choice of employer" if they didn't have enterprise-grade AI tools.

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