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Y Combinator is out with its wish list. AI Hedge Funds Make the List.
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The YC list of companies they are looking for is making its way around Twitter, LinkedIn, VC text message groups, and Zoom meetings. I have had multiple calls, and they all are “What do you think of AI Hedge Funds?”
My immediate response is why is this a VC business? AI hedge funds sound great. Worldquant, Citadel, Engineers Gate, Millennium, Two Sigma, and dozens of other top hedge funds have teams that are fully using AI and have been for 10 years. There are also dozens of pods at hedge funds leaning in with AI. Is the next WorldQuant or Two Sigma, that is AI native going to be a VC business? I will say No. Why does a startup hedge fund need VC money? VC’s need an exit in 7-10 years, so any good hedge fund would like to stick around longer than that.
Also lets be really honest, AI and using AI for alpha, compliance, research, and everything in between is only one part of the game. Marketing/Fundraising, Recruiting, and Risk Management are more important in my opinion. There are thousands of PMs and teams showing great sharpe ratio strategies using AI that never raise enough AUM. Why? They don’t have all the pieces to make people want to get involved. Also, to run a hedge fund these days, anything less than $250m, maybe even $500m, is hard.
All that being said, there will be a one-man hedge fund, leveraging AI, that will manage over a billion dollars. BUT I don’t think that will be a VC-backed hedge fund. If there is a prediction market on will be a VC-funded AI hedge fund with over $1B in AUM before 2028, I would take the NO.
