What’s a Quant Fund?September 20, 2018 1:06 am
Quants funds, also called ‘Quants’, are a form of high-frequency, traded alternative investment that is not powered by analysts staring at market movements on multiple screens at a time, but rather by proprietary algorithms which have been built to run in sync with trading programs. Yes, it is a lot of factors to squeeze into one sentence. Investopedia However, quants are unique but becoming more commonly embraced as a leading platform with which to trade, invest and diversify portfolios of assets. In this class of asset management, portfolio managers want to hire mathematicians, data scientists, and programmers who can write code which can interpret what is called “big data.” In big data, there are numerous variables from a wide range of sources that they must process to execute a successful strategy time and again. They include global factors, systematic weakness, market news, geopolitical stability, and even data by country. Currently, close to one-third of US stock trades are executed via automated trade programs. One of the primary reasons for this growth is the increasing challenge of consistently beating the product benchmark and generating a pleasing return for investors. Therefore, some hedge funds have forayed into this market approach while other funds are standalone quant-managed strategies. Because these funds are so unlike other alternatives that are “traditionally” held, such as private markets and hedge funds, they carry high entrance requirements and investors must have proven liquidity to be offered submissions docs.
I was surprised to see an article describing how the NY City Fire Department and the NY City Police department pensions are investing a combined $134 million of their contribution savings into Florin Court Capital. Not common advice for long-term investment strategy for sure, but they’ve done it to head off concerns about high-interest rates and equity market losses down the line. Florin Capital isn’t these plan sponsor’s first quant investment and, apparently, experience with diversification is paying off. There are many proprietary strategies, and the one addressed here is commodity trading advisors (CTAs). Since the 1980s, CTAs have consistently outperformed equity markets when they do poorly. What pension managers are chasing is ‘Crisis Alpha’, described as an even better performer than historically successful hedge funds when mutual funds inevitably lose value under bear market conditions. Yahoo! Finance Exotics are not what most would guess as a likely destination for a major pension fund account. But, don’t get too excited! Don’t expect to see them under your list of investment options from your 401(k)-plan sponsor.Tags: benchmark, CTA, hedge funds, private markets, quant
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This post was written by Daniel Jones