Hedge Funds Behind Growing Use Of Quants

From Hedge Fund Daily comes the hedge fund world through the lens of a newbie reporter:

For hedge funds, it does not compute to use human analysts, when an electronic version can do basically the same job. And thus, Reuters reports, hedge funds, which were early to adopt new investment methods, are being credited (or perhaps, blamed, if you’re an analyst), for the burgeoning growth of quantitative strategies. “It’s all about trying to create an artificial analysts,” one unnamed portfolio manager at a quant hedge fund told Reuters. “It may not do it as well (as a human), but it makes up for it in volume.” Reuters cites as evidence of quant success to two of the industries top hedge funds that use them, D.E. Shaw and Renaissance Technologies, which were formed by math professors and are well-staffed with scientific types. Following their example, even non-quant hedge funds are expanding their use of computer models. “It doesn’t necessarily mean that Wall Street analysts are going to go out of business,” Ron Papanek, director of strategy at RiskMetrics Group, said in a Reuters interview,” but it does mean that there are other ways to be successful in identifying value.” He further noted that the fact that the biggest hedge funds are using its means “this form of analysis has legs.” Taking some of heat off hedge funds for equity analysts woes, Brad Hintz of AllianceBernstein, said the human kind are “doomed” also because regulatory investigations into analyst conflicts years ago has resulted in lower trading commission, and that’s put research on the cutting block as firms try to save on operating costs.

How can an author write about quantitative trading strategies in June 2007 and with a straight face make the case that these efforts are innovative or new? Systems trading has been around since the time of Richard Donchian – that’s back to the 1950s and earlier. Don’t get me wrong, Simons is a trading stud, a legend, but the basic ideas of 100% mechanical systems is not ground breaking.