American Idol for Hedge Funds

Raising capital for start-up funds could be a painful process, especially for some quant managers who trade on complex algos and have a hard time selling themselves to investors. Now there's a way to bypass the "selling" part: Three guys started a company called "Battle-Fin", which hosts tournaments that let hedge funds to battle it out. The prize? Up to $5 million of capital to manage.

Apparently the tournament is open to all quants, whether or not someone has actual experience in investing. There are three divisions:

• The “Elite” division is for experienced managers who will compete with real clients' money. The winner would receive $5 million of the prize capital.
• The “Professional” division is for entrants running their own money. The winner would receive $3 million.
• The "Launch” division is for contestants trading only on paper. Two winners in this division would each receive $1 million to manage.

The first official tournament got quite a bit of interest. 130 funds applied, and 26 were chosen to enter.

The funds chosen—26 in all—were run by a motley bunch. Two master-level chess players headed one, which they called Chessica, after the original name, Genius Hedge Fund, failed to go over well with investors. Another fund, ProForza Advisors, boasted a rocket scientist who had worked for NASA, studying weather in the magnetosphere. Yet another contender, Stephen Longo, a Fu Manchu–mustache-sporting Long Islander, had spent 20 years as an engineer at General Motors (GM). He had been racking up impressive gains on a theoretical trading platform for years, making millions, but only on paper; winning the tournament would give him a chance to prove his investing chops without a safety net. Martin Rosenburgh, who managed $1 million of friends-and-family money from home on a 27-inch iMac, was also optimistic.

It was a two-month tournament that started on October 1. The contestants actually did pretty well.

In the tournament’s final days, 8 out of 10 funds in the real-money divisions were beating the S&P.

The next one starts on February 1, 2013.

I think this is a great idea. No track record? No sales expertise? No problem! In a fair tournament where everyone starts off equally, the only thing that matters is performance. Granted, results from two months of trading might have a lot to do with luck, but the tournament does give aspiring managers a shot at getting that initial capital to build a track record.

What do you guys think?