The quality of hedge funds' lifeblood — data — has declined because of AI (www.businessinsider.com)

A recent survey by Neudata reveals that one-third of investors claim the quality of alternative data has declined over the past few years, with many attributing this degradation to the rise of artificial intelligence. As hedge funds increasingly rely on alternative data sources—information outside traditional financial frameworks—the influx of new vendors leveraging AI for data collection and processing has complicated the landscape. However, the reliance on AI has led to concerns regarding data provenance and quality, as many vendors struggle to clearly communicate how their datasets are generated, raising compliance issues for hedge funds navigating federal regulations. The implications for the AI/ML community are significant, as the increasing use of AI in data creation may inadvertently prioritize finding new use cases over maintaining data hygiene. Experts like Daniel Entrup and Daryl Smith emphasize that while hedge funds trust AI for workflow efficiency, they remain skeptical of its reliability in producing high-quality data sets. With basic data hygiene issues on the rise, the challenges of data hallucinations and inaccuracies present real risks for investment strategies reliant on AI-generated information. As a result, many hedge funds prefer to run data through their own sophisticated systems rather than depend on potentially flawed vendor outputs, signaling a critical need for better quality assurance in AI-driven data solutions.