Of course they will reload, but with a lot less capital (after redemptions) and for some with way less leverage. The 800 pound gorillas deciding which strategies get capital and which don't... will be the Fund of Funds. I see many FOFs dropping negatively performing Quant RV Funds overnight without any mercy and going back to oldschool discretionary Long/Short Equity strategies. Spinning the wheel a bit further, RV strategies won't go away over night. This fallout should create a whole set of new opportunities in the RV space in the long run because these trades will now likely be far less crowded.
http://www.dealbreaker.com/2007/08/how_credit_market_turmoil_rock.php âAs these managers unwound significant factor based portfolios, these factors started to behave in unexpected and potentially troubling ways. Short names started to rally and long names started to fall as these trades started to hit the market. As most quantitative managers use similar quantitative factors, this abnormal factor phenomenon was not confined to a few funds. Rather, a large number of quantitative managers have seen their models begin to behave in unexpected ways. Again, it is no longer only the multi-strategy managers, but now pure quantitative equity managers who have started to see their portfolios âmisbehave,â both U.S. domestic and global fund managers,â explains Lehman Brothers analyst Matthew Rothman in a memorandum published today. What a load of croc. So all of these geniuses all had the same positions and now they are all selling!
Makes me happy to see the quants get their a*ses whopped. They've spread like weed throughout the trading environment, and now their seemingly brilliant formulas are getting smashed by simple strategically thinking old-school discretionary traders. History repeats itself: http://www.fool.com/Features/1997/sp971017CrashAnniversaryFlawedInsurance.htm "Three econometricians went out hunting, and came across a large deer. The first econometrician fired, but missed, by a meter to the left. The second econometrician fired, but also missed, by a meter to the right. The third econometrician didn't fire, but shouted in triumph, "We got it! We got it!""
I like this one from your link: "Black Mesa Capital is telling investors that the liquidation of a big hedge fund or investment bank trading portfolio is totally ruining their financial models" Sounds like: "Dear investors, since everything is fine with us, something must be wrong with the universe"
You know these charlatans really get to me, I have a PhD, but its not in "Phinance" what gets too me is that they are not real scientists. To say we are seeing events that are supposed to happen every 1:10000 events three days in a row, tells me that they are imposing their view of reality on the markets. Any scientist knows that you formulate a hypothesis in such a way that it can be refuted. The moment you see a 1:10000 event three times in a row, it tells me your hypothesis has been refuted! Nothing more nothing less! How any right minded person bet the farm and then some on his hypothesis, is beyond me, deserved to get brained. But of course these yahoo's earned 2 and 20 on OPM. All of this just confirms for me, that there is very little trading talent, if any, at the major banks and institutions. OK thats my rate for the day, thanks for listening.
What ? No MISSION OF MERCY ???? What the quant guys need is the famous GLENGARRY GLEN ROSS speech <object width="425" height="350"><param name="movie" value="http://www.youtube.com/v/TROhlThs9qY"></param><param name="wmode" value="transparent"></param><embed src="http://www.youtube.com/v/TROhlThs9qY" type="application/x-shockwave-flash" wmode="transparent" width="425" height="350"></embed></object>
Well said; I think quants have spread like the plague, because they can also offer some advantages over successful discretionary traders; namely, when the money making discretionary trading whiz-kid leaves the trading desk, he also takes his edge with him, whereas when the quant leaves, you just need another rocket scientist that can continue the programming. From a banks POV, this more stable than hiring, say, 20 traders of whom only one or two will make exceptionally high profits, that will subsidize the other 18-19 trader's costs. Well, but if you're that successful, why subsidize other idiots?
Can you believe 1987 happened 20 years ago? I'll be very interested in finding out what happens to the quant funds out there.
Hedge Fund Secret Algorithms revealed: -------------------------------------------------------------------- 1 If Interest rate T-Bill < Yield CDO then BUY CDO 2 If position < Credit line then 1 if last credit line > position then halt redemptions and "sorry" -------------------------------------------------------------------- Seems that was all it was, with 40x leverage