The quant fund investing in humans not algorithms
If you’re anything like FT Alphaville, you too will be being pushed to your limits by the entirely mind-melded rhetoric coming out of the future of finance space. (Especially if you attend as many fintech panels as we do.)
The problem is that the once cutting-edge claims of fintech — which first started doing the rounds in 2011/2012 — have become so established in executive and management consulting circles, they’ve begun to resemble catechism. It’s a self confirming feedback loop unlike any we’ve ever seen before, with little questioning or challenging of the now excessively entrenched assumptions.
You know the spiel: robots will takeover everyone’s jobs, distributed ledger technology will save the world, challenger banks will bring down the incumbents, and we’ll all be better off because big data means democratisation.
Frankly, we’re amazed that so many self-proclaimed “thought leaders” can get away with being such unabashed thought followers.
The problem was evident on a future of finance panel we moderated at the Milken Institute conference in London this week. One predictable cliché followed the other on all the usual suspect topics. We’d provide the details if we weren’t convinced you’d heard them before (about a million times or more).
But there is one reason not to despair entirely.
It came in the shape of Geoffrey Duncombe, CIO at Two Sigma, one of the world’s most successful quant hedge funds, which counts Renaissance Technologies and DE Shaw as its competitors.
You’d think a fund famous for showing the prowess of its quantitative and algorithmically modelling techniques would be firmly on board with the narrative that big data is king and computers are better than people.
But here’s the shock. It wasn’t.
Duncombe, to the contrary, was fixated by the herding risks being posed by everyone being in on the same big data and AI ideas.
His point was simple but pertinent.
As recently as four/five years ago, raising money for a predominantly quant-based fund took persuasion. Most people remained enamoured with the star manager model. From Paul Tudor Jones to Dan Loeb, personality mattered, which made selling computer-driven strategies much more of a challenge.
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