Richard Craib is a 29-year-old South African who runs a hedge fund in San Francisco. Or rather, he doesn’t run it. He leaves that to an artificially intelligent system built by several thousand data scientists whose names he doesn’t know.
Under the banner of a startup called Numerai, Craib and his team have built technology that masks the fund’s trading data before sharing it with a vast community of anonymous data scientists. Using a method similar to homomorphic encryption, this tech works to ensure that the scientists can’t see the details of the company’s proprietary trades, but also organizes the data so that these scientists can build machine learning models that analyze it and, in theory, learn better ways of trading financial securities.
“We give away all our data,” says Craib, who studied mathematics at Cornell University in New York before going to work for an asset management firm in South Africa. “But we convert it into this abstract form where people can build machine learning models for the data without really knowing what they’re doing.”
He doesn’t know these data scientists because he recruits them online and pays them for their trouble in a digital currency that can preserve anonymity. “Anyone can submit predictions back to us,” he says. “If they work, we pay them in bitcoin.”
The company comes across as a Silicon Valley gag. All that’s missing is the virtual reality.
So, to sum up: They aren’t privy to his data. He isn’t privy to them. And because they work from encrypted data, they can’t use their machine learning models on other data—and neither can he. But Craib believes the blind can lead the blind to a better hedge fund.
Numerai’s fund has been trading stocks for a year. Though he declines to say just how successful it has been, due to government regulations around the release of such information, he does say it’s making money. And an increasingly large number of big-name investors have pumped money into the company, including the founder of Renaissances Technologies, an enormously successful “quant” hedge fund driven by data analysis. Craib and company have just completed their first round of venture funding, led by the New York venture capital firm Union Square Ventures. Union Square has invested $3 million in the round, with an additional $3 million coming from others.
Hedge funds have been exploring the use of machine learning algorithms for a while now, including established Wall Street names like Renaissance and Bridgewater Associates as well as tech startups like Sentient Technologies and Aidyia. But Craib’s venture represents new efforts to crowdsource the creation of these algorithms. Others are working on similar projects, including Two Sigma, a second data-centric New York hedge fund. But Numerai is attempting something far more extreme.
On the Edge
The company comes across as some sort of Silicon Valley gag: a tiny startup that seeks to reinvent the financial industry through artificial intelligence, encryption, crowdsourcing, and bitcoin. All that’s missing is the virtual reality. And to be sure, it’s still very early for Numerai. Even one of its investors, Union Square partner Andy Weissman, calls it an “experiment.”
But others are working on similar technology that can help build machine learning models more generally from encrypted data, including researchers at Microsoft. This can help companies like Microsoft better protect all the personal information they gather from customers. Oren Etzioni, the CEO of the Allen Institute for AI, says the approach could be particularly useful for Apple, which is pushing into machine learning while taking a hardline stance on data privacy. But such tech can also lead to the kind of AI crowdsourcing that Craib espouses.