Investors weary of stocks and bonds will soon be able to try their luck on a new sports betting fund that hopes to profit by using algorithms to predict the outcome of matches.
The new fund, to be launched this summer by tech start-up Stratagem, aims to exploit advances in artificial intelligence to analyse football, basketball and tennis matches using algorithms to place bets before and during games.
The company’s chief executive officer, former Goldman Sachs trader Charles McGarraugh, said its “ultimate goal” was to establish betting on sports as an asset class.
Among the techniques it uses, the company has developed technology to map football pitches spatially in real time, tracking balls and players, allowing its computers to “watch” a football match. Betting both before and during games, the company also employs sports experts in a monitoring role.
While fund managers have long used powerful computers to crunch data and aid stock picking, algorithms that “learn” as they scan through large data sets can adjust themselves to create new trading strategies.
Proponents of artificial intelligence hope that a computer that can learn as it trades will supersede the investment algorithms currently used by some funds.
Mr McGarraugh said sports betting markets were the perfect place to test the company’s AI strategies.
“The sports betting market is large, but fragmented, while sporting events are highly structured and repeated,” he said. “We think artificial intelligence will be the story over the next five years.”
Stratagem hopes to raise £25m for the fund, which will initially only be open to wealthy investors. It will be the second sports betting fund available to UK investors, and the first to be largely automated.
Commentators pointed out the investment risk involved would be too high stakes for some.
“It’s a bonkers idea for investing,” said David Stevenson, founder and director of alternative finance research company AltFi and FT Money’s Adventurous Investor columnist. “I’ve never seen any evidence that suggests that sports betting outcomes are anything but random.”
Stratagem already sells subscriptions to its trading software and is one of a handful of companies offering analysis and tips to paying customers.
Its move into asset management, however, was prompted by its interest in artificial intelligence and machine learning, where an algorithm scans information to look for patterns and make decisions.
Although a sports betting fund is unusual, Stratagem is not the only fund manager to dream of applying artificial intelligence to trading and asset management.
Established asset managers ranging from BlackRock, the world’s largest fund house, to Schroders, the UK’s largest listed fund manager, have been snapping up computer scientists to help them develop their investment systems.
Hedge funds, meanwhile, have long been expressing an interest in the principles of machine learning.
A Guernsey-based sports betting fund, run by Australian investment house Priomha, launched in March 2016. Although open to retail investors, the minimum investment is £285,000. Its fees are 2.5 per cent a year, with a performance fee of 25 per cent.
Another fund, set up by London-based Centaur Corporate in 2010, bet on the outcomes of football, racing and tennis matches. However, the Galileo fund, which projected returns of 15 to 20 per cent, lost $2.5m when it collapsed in 2012, just two years after launching.
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