Hedge funds use AI to read deal documents faster, but keep limits

In short: Hedge funds are using AI to process long financial and legal documents quickly, but many are keeping it away from sensitive trading and internal systems.

What's going on

Some hedge funds say AI is helping them react faster when big company events happen, like merger and acquisition announcements. Sand Grove Capital Management, a London hedge fund, said AI can review complex deal documents that are often over 100 pages long in seconds. A task that used to take an hour for a person can now start with a quick summary in under a minute.

Sand Grove’s CEO Daniel Caplan compared AI to “a very fast, very thorough intern.” The firm uses several popular AI tools, including Anthropic’s Claude, Microsoft Copilot, and OpenAI’s ChatGPT. Caplan said Claude is especially useful for legal documents.

A survey by the Alternative Investment Management Association, an industry body, found that 95% of hedge fund respondents were using AI. The survey covered funds managing about $788 billion in total. The most common uses were general research, summarizing documents, and writing meeting notes.

At the same time, many funds are cautious about letting AI do higher-risk jobs. The survey found top concerns were data security and privacy, and “hallucinations” (when an AI system makes something up and presents it as true). Only a small number of funds reported using AI for cyber security or for tasks like portfolio optimization, meaning deciding what to buy and sell.

What to watch

Expect more AI use in back-office work and document review, but slower adoption in direct trading decisions. Many firms say a human still needs to check AI output before it is used, especially when real money is on the line.

Source: Financial Times