Quants Run Wall St. Now?

We were sort of confused when we noticed the Wall Street Journal is doing an entire series on what they’re calling “the quants,” including the lead article title “The Quants Run Wall Street Now.” Now?  Are they not familiar with Scott Patterson’s 2010 book “The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It.” Mr. Patterson was, after all, a staff reporter of… wait for it… the Wall Street Journal.

We get it, algorithms and quants and machine learning and roboadvisors and all the rest are the latest buzz words in a financial world increasingly comfortable with the concept of computers running things, from self-driving cars to algorithm-driven shopping recommendations to self-adjusting thermostats. There’s also the fact that “Quant hedge funds” are responsible for 27% of all U.S. stocks traded these days, just slightly behind individual investors at 29%, and now comfortably ahead of such trading by “other hedge funds” and traditional asset managers.

Quant Hedge Funds share of us stock market

Ultimately, it’s a little disingenuous to pretend this is new at all.  It’s at least as old as pre-financial crisis, as portrayed in the aforementioned book (which they do mention, about half way in); but more than that – futures focused hedge funds have been doing quant stuff for decades. Some might even say they invented it. We’re talking quants who’ve have been trading currencies, grains, foreign bonds, WTI, going both long short these strategies making returns since the 1980’s.  Don’t believe us, go read this book detailing the exploits of legends like Boston Red Sox owner John W. Henry, who was doing systematic (investing based on an algorithm) trading in futures markets way before Theo Epstein was a twinkle in his eye.

The article gets some of this right,  highlighting long time managed futures stalwart Man AHL, and their recent allocation from Pepperdine University.

Much of that push is coming from investors such as Pepperdine University in Malibu, Calif. Last year, the college placed about 10% of its $750 million portfolio in big quant funds, including those run by Man Group PLC of London and AQR Capital Management LLC, Greenwich, Conn.

How did AHL get its start in the quant world?  By someone trying to automate the mundane task of updating sugar charts. Here’s an excerpt from a recent feature we wrote about them:

It all started at a London sugar brokerage named Brockham Securities where owner Cyril Adam charged his son, Michael with updating the commodities charts – a task he took to automating with computers, and that eventually turned into coding technical indicators. The work was plentiful, and Adam quickly brought on Oxford classmate (and computer programmer) Martin Leuck to assist. They then found Cambridge alum David Harding, who had done a stint on the trading floor of the LIFFE and gone on to work at a UK based CTA named Sabre Fund Mgmt.

A little more recent name, Two Sigma, also gets a mention, even though it’s up for debate whether they are strictly a Managed Futures firm.  There’s also futures legend Paul Tudor Jones, who is mentioned as being one of the later entrants to the quant world and trying to catch up in a sense by hiring them on.

In the end, this isn’t new – us futures folks have been doing it for years and years. But it is far from old, either.  There is definitely a new generation of quants pushing the envelope in terms of alternative data sets, execution algorithms, and more. And there’s definitely, as the Journal points out, a sort of arms race among hedge funds for quant talent to help build out their next generation algos and machine learning and what not. Which that begs the question, if everyone’s doing it, is there going to be an edge in it? If we’re not already there, we will be in a matter of time – where it’s not enough to simply be doing “quant stuff,” to be overly generic. You have to be doing the quant stuff well. Having a quant on staff and building algorithms are really just the table stakes or price of admission these days. Which, maybe, is what the article is trying to say in the first place.

To learn more about the History of some of the famous quants, download our “History of Managed Futures” Whitepaper here.

2 comments

  1. […] Let’s not pretend all this ‘quant stuff’ is new. (rcmalternatives) […]

  2. […] The quant stuff isn’t new…its not too old either: RCM Alternatives […]

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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