YouTube cofounder Steve Chen is partnering with veteran money manager Jack Fu to launch a hedge fund that picks stocks and fixed-income assets through the use of artificial intelligence.
The Draco Capital Macro Quant Fund has already raised $50 million with a goal of $200 million by the end of 2021, Chen said last week. The fund that debuted in September uses an AI algorithm to gauge which assets are ideal for both bull and bear markets, he says.
â€œIt utilizes much of the AI and big data processing that was employed in companies that Iâ€™ve worked and/or advised in Silicon Valley,â€ Chen says. â€œIt weighs the large tech companies, such as Apple and Microsoft, in a bullish market, while focusing more on defensive assets, such as gold and long-term treasuries, in a bearish market.â€
The fundâ€™s process of â€œsystematic investmentâ€ adds accuracy to decision making, Chen says. He says that means mixing economic analysis and investment logic with computer algorithms to create AI-driven decision-making models. Itâ€™s set up to reduce downside risk, he adds. â€œ(The fund) replaces subjective trading based on human judgment with systematization,â€ Chen says.
Chen met his fund partner last year, and found that Fu knew how to use big data effectively to manage investments. â€œThis triggered my motivation to apply my professional background in the financial field,â€ Chen says.
The partners work together now on the Delaware-registered fund as co-owners of Draco Capital Partners, which Fu started in 2015. They are the fundâ€™s two top investors. Fu, a career investment management professional now based in Taiwan, has run hedge funds before. Today he leads a group of analysts, data scientists and computer engineers.
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â€œWe’re able to predict the market with our own leading indicators and adjust our holdings accordingly,â€ Fu says.
Chen cofounded YouTube with former PayPal colleagues Chad Hurley and Jawed Karim in 2005. Chen went on to be an entrepreneur-in-residence at Google Ventures from 2014 to 2018, and moved back to Taiwan in 2019 with ambitions to help Taiwanese startups.