"Shrinking âQuantâ Funds Struggle to Revive Boom They were revered as the brightest minds in finance, the âquantsâ who could outwit Wall Street with their Ph.D.âs and superfast computers...." http://www.cnbc.com/id/38783519
So many advanced degrees,so much computer power, and yet, so much disdain (even ignorance) for hard theory and statistical tests which pointed their stationary models were wrong and ill-defined even if making money in the short run. There exist scientific and profitable quantitative models but they are nothing like any model taught at PhD programs. Counterintuitively, some discretionary strategies are more "scientific" (in the Karl Popper sense) than many quantitative, mechanical strategies.
HF quants trade futures, ETF's and their options over equities. These packaged derivatives are the preferred instruments trading today for liquidity, volume, trading costs and taxes.
the huge overhead makes the hedge fund industry "as an asset class" a net loser for investors. This is well hidden by misleadingly constructed hedge fund indexes and the failure to report actual cash on cash returns taken out by the funds which in all likelihood trails a simple portfolio of stocks and bonds. It is one more example of a sector that has become vastly overblown do to cheap credit and short term greed. When you are talking trillions of dollars there is no way to pull ahead of the crowd as mob psychology will be by definition whatever these "sophisticated" investors on net choose to do. The market can't beat "the market". The hedge fund "as an asset class" is a marketing scheme cooked up by salesmen. The "industry" has become just another slick method of siphoning investor money into the pockets of the wildly overpaid "helpers" as Mr. Buffett calls them.
Agree, sticking with boutique shops here. All great fund managers started small. Virtually none of them started as bankers.
Any idiot can make money in a perpetual bull market. Like Warren says, "You only find out who is swimming naked when the tide goes out." This market is where its at, All the weak hands are getting flushed out.
This is all too true. I spoke with a buy and hold (mold), long only RIA who was managing a little over 100M before 2007. Now he's managing 24M:eek: He's been "swimming naked" buying and molding -40 even -55% in some positions. He won't listen to me when I tell him that long/short swing trading is the ONLY reason I have survived with my Clients. Guess you can lead the horse to water, but making him drink it is another story...
Has it ever occurred to you guys that it has nothing to do with the quant funds themselves, and in fact has to do with the ecosystem they find themselves in? There are only two types of trading, momentum and mean reverting. I argue that the funds that are exiting are/were momentum seekers. Since money is leaving equities as an asset class, and most of those funds are momentum seekers, the funds that relied on that food chain and had no other strategy found themselves without edge above and beyond normal market returns. The funds that remain are the ones that are mean reverting and/or have multiple strategies that work. You guys have all said the same thing in different ways. It isn't the "quantness" that got them, rather the one dimensionality and the lack of respect for regime changes that got them, imo.