Shrinking ‘Quant’ funds fails to revive boom
NEW YORK, Aug. 20: Mr Theodore Aronson, a quant fund manager in Philadelphia, has seen his firm’s assets fall by $12 billion since spring 2007.
But after blundering through the financial panic, losing big in 2008 and lagging badly in 2009, these so-called quantitative investment managers no longer look like geniuses, and some investors have fallen out of love with them.
The combined assets of quantitative funds specialising in United States stocks have plunged to $467 billion, from $1.2 trillion in 2007, a 61 per cent decline, according to Evestment Alliance, a research firm.
That drop reflects both bad investments and withdrawals by clients.
The assets of a broader universe of quant hedge funds have dwindled by about $50 billion. One in four quant hedge funds has closed since 2007, according to Lipper Tass.
“If you go back to early 2008, when Bear Stearns blew up, that’s when a lot of quant managers got blown out of the water,” said Mr Neil Rue, a managing director with Pension Consulting Alliance in Portland, Ore.
“For many, that was the beginning of the end,” he added. Wall Street’s rocket scientists have been written off before. When the hedge fund Long Term Capital Management nearly collapsed in 1998, for instance, some predicted that quants would never regain their former glory.
But this latest setback is nonetheless a stinging comedown for the wizards of high finance.
For a generation, managing a quant fund — and making millions or even billions for yourself — seemed to be the running dream in every math and physics department. String theory experts, computer scientists and nuclear physicists came down from their ivory towers to pursue their fortunes on Wall Street.
Along the way, they turned investment management on its head, even as their critics asserted they deepened market collapses like the panic of 2008.
Granted, Wall Street is not about to pull the plug on its computers. To the contrary. A technological arms race is under way to design financial software that can outwit and out-trade the most sophisticated computer systems on the planet.
But the decline of quant fund assets nonetheless runs against what has been a powerful trend in finance.
For a change, flesh-and-blood money managers are doing better than the machines. Much of the money that is flowing out of quant funds is flowing into funds managed by human beings, rather than computers.
Mr Terry Dennison, the United States director of investment consulting at Mercer, which advises pension funds and endowments, said the quants had disappointed many big investors.
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