- Quant funds have been slammed over the last couple of days, with big names like Bridgewater, Schonfeld, and Renaissance taking a hit.
- Several quant investors told Business Insider that it’s worse than 2007, when the infamous “Quant Quake” steamrolled even the most savvy of funds.
- “Of course we are questioning if we should have done things differently,” Bridgewater founder Ray Dalio wrote in a note to investors.
- Click here for more BI Prime stories.
For long-running quant funds, their financial crisis happened in 2007, not 2008.
The “Quant Quake” decimated prestigious computer-investing units like Goldman Sachs’ Quantitative Investment Strategies, and, according to the FT’s 10-year anniversary piece on the event, “scarred a generation of financial scientists on Wall Street.”
The last seven days, quant investors and industry observers say, have been worse — or, at least, have felt worse.
The biggest hedge fund in the world, Ray Dalio’s Bridgewater, has fallen by double-digits in its main funds, Pure Alpha and All Weather, which have lost 21% and 14% since the beginning of the year, respectively.
Dalio said in a note to clients on Wednesday that the firm considered overriding its systems before the outbreak of the novel coronavirus, but decided not to because “we knew we didn’t have an edge trading based on our views of the virus and because the range of possible outcomes was so huge.”
“Of course we are questioning if we should have done things differently,” he said.
Dalio is not the only one down, though.
Schonfeld Strategic Advisors is down more than 10% on the month as of this week in its Partners Fund, which combines fundamental stock-pickers with the firm’s quant strategies, sources say. A source familiar with the situation said the firm, which traditionally does not update investors on inter-month performance, held a call yesterday with investors to inform them, but had a slight bounce-back today and is committed to the quant strategies.
Through March 13, Renaissance Technologies $6.6 billion Institutional Equities fund is down 5.5% for the month and 12% for the year, a source said. Point72’s Cubist is down 2.7% for the year, sources say, while WorldQuant is down 3%.
The funds declined to comment.
The issue, of course, has been the pandemic caused by the novel coronavirus, which has introduced record-levels of volatility to the public equity markets and forced central banks to slash interest rates. Highly leveraged quant funds have had trouble adapting their models quickly enough, several sources say, and have been shedding holdings quickly. The selloff was then amplified by the different levels of leverage funds had.
The big difference between now and 2007, industry sources say, is quant funds have a much larger portion of the market; about a year and a half ago, quant hedge fund assets surged past $1 trillion — making up just under a third of total assets in the space. In the FT’s look-back at 2007 written three years ago, analysts worried about exactly that.
“What is going on now is not just the growth of quant hedge funds, like before the crisis. Now it’s system-wide across the investment world. In 2007 it was localized because no one else was pursuing these strategies. Now everyone is,” Richard Bookstaber told the paper. Bookstaber previously worked at Moore Capital and Morgan Stanley, and is currently the chief risk officer for the University of California pension.
The biggest hedge funds in the industry rely on systematic models, such as Bridgewater, AQR, and Two Sigma, but a research report from Barclays in 2019 even found that quant strategies were paving the way for “super managers” because large, multi-strategy funds began incorporating more quant practices in their discretionary books.
Headhunters don’t expect the quant skillset to become any less desired though, even if there is a big drop in assets. Hedge funds have been battling Silicon Valley for this type of talent for years now, and believe in it, says Vickram Tandon, founder of A-Squared Search.
“Yes, the process has slowed down, but that doesn’t mean there’s not still action happening,” he said, noting he had been sent two resumes Wednesday morning.
“It’s like the summer, but it’s not dead.”
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