In summary: Recently, billionaire activist HF manager Dan Loeb offered $2 million/year salary to snatch a 32 year old from a Quant HF to be the Chief Data Scientist at Third Point LLC. He said he intends on using data to support our existing fundamental strategy...it’s a “quantamental” technique combining fundamental and quant strategies that is becoming important to remain competitive at stock investing.
Quants are notoriously secretive but essentially data scientists in the hedge fund world are responsible for gathering and handling data from a variety of sources and using them as predictive signals (sorta like how technical traders had indicators). Third Point, which traditionally uses fundamental strategies and human-driven bets, now employs 6 quants (including the 32 year old). Dan Loeb
Dan Loeb says that they are not turning to systematic investing but simply using data to support his existing strategy. No one seems to really know exactly how quants will support fundamental hedge funds like Third Point. Nonetheless, this seems like a trend now: non-quant hedge funds (such as Paulson & Co, Point72, etc.) to turning to quants, big data, and artificial intellligence/machine learning amidst terrible performance.
What are your thoughts?
Sources: -https://www.forbes.com/sites/nathanvardi/2016/12/… -https://www.bloomberg.com/news/articles/2017-05-1…
I wonder how they use it in practice. Having spoken to a few quantamental managers, my gist is that they use a more sophisticated approach to filtering but still trade discretionary. Take a university of securities, load a bunch of KPIs, calculate a score and rank them, then do the research on the top X. Rinse and repeat. The problem tends to be that the quality of data is poor (i.e. financials are not like-for-like, there are significant in-period events such as asset disposals or acquisitions).
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