Start-up hedge funds look to AI to overcome scale disadvantage

Emerging hedge fund managers are using AI to build businesses from the ground up without the legacy technology burden of larger rivals, potentially helping start-ups overcome some of the disadvantages of operating at smaller scale.

Lawrence Obertelli, head of EMEA Prime Service Sales at Marex, said newer managers have an opportunity to establish more modern technology infrastructure from launch, including using AI to develop systems that would previously have required significant investment or third-party software.

Speaking on an AIMA podcast examining findings from the Stacking Up: Emerging Manager Survey 2026, Obertelli cited one emerging manager that had used AI to help build a new system from scratch rather than purchasing an existing solution.

The potential advantage comes as emerging managers face rising costs associated with building increasingly institutional businesses capable of attracting sophisticated investors.

Larger managers still lead

Separate research from alternative data specialist Neudata suggests, however, that start-ups have yet to translate their lack of legacy infrastructure into higher overall AI adoption.

Its Future of Alternative and Market Data 2026 report found firms managing more than $1bn selected an average 2.3 AI initiatives, compared with 1.7 among managers below $1bn.

Larger managers were particularly more likely to use AI for internal task efficiency and chatbots, although the gap narrowed for more demanding applications such as building models in-house.

Neudata concluded that smaller managers are currently doing less with AI overall, with larger funds leading the technology’s adoption into routine workflows.

Efficiency comes before alpha

The findings also suggest AI’s most immediate benefit to emerging managers could lie in running the management company more efficiently rather than generating investment returns.

Only 3% of Neudata’s data buyers reported not using AI or large language models at all, but operational applications remain dominant. Some 41% attributed measurable AI returns to efficiency improvements and 19% to cost savings, compared with 17% reporting improved investment performance.

The proportion using AI or LLMs to optimise investment strategies slipped from 31% in 2025 to 28% this year.

That distinction could be particularly important for emerging managers. Marex’s research suggests start-ups increasingly need institutional-grade operations from day one, raising the financial threshold required to establish a scalable hedge fund business.

AI offers smaller firms a potential route to building some of that infrastructure more efficiently, even if the technology has yet to close the wider gap with the industry’s largest managers.