Fundamental Analysts at Quant Firms
Fellow Chimps,
Please could someone explain the rise in fundamental research positions at quant firms. I’ve seen more and more come out recently and have been wondering why. I have a feeling it’s due to pricing ETFs but some more colour would be appreciated.
The rise in fundamental research positions at quant firms can be attributed to the increasing integration of "quantamental" strategies, which blend quantitative and fundamental approaches. Quant firms are recognizing the value of incorporating fundamental insights to enhance their models and strategies. Here's why this trend is gaining traction:
Complementing Quantitative Models: Fundamental analysts bring a deep understanding of qualitative business fundamentals and valuation frameworks. This complements the data-driven, algorithmic nature of quant models, allowing firms to refine their strategies and identify opportunities that pure quant models might overlook.
ETFs and Factor Investing: As you mentioned, pricing ETFs and understanding factor exposures are key areas where fundamental research adds value. Fundamental insights help in dissecting the underlying components of ETFs and identifying inefficiencies or opportunities within them.
Risk Management: Fundamental research aids in better risk assessment by providing a qualitative layer to the quantitative risk models. This is particularly useful in managing unwanted factor risks or exposures in diversified portfolios.
Alpha Generation: By combining fundamental research with quantitative techniques, quant firms aim to generate alpha in ways that purely quantitative or fundamental approaches might not achieve independently.
This hybrid approach is becoming more popular as firms seek to leverage the strengths of both methodologies to stay competitive in an evolving market landscape.
Sources: Compensation Structure At Quant VS Fundamental Funds, Compensation Structure At Quant VS Fundamental Funds, Good time for a new analyst to join L/S hedge fund?, Hedge Funds v/s Private Equity: Which industry will survive and thrive in the next two decades?, "Quantamental" firms?
bumppp
Quant hedge funds generally moving past price / volume data, most of the process now is fundamental or alternative data
can you elaborate please? why the shift and what does a fundamental + alt data strategy look like for quants
The idea is to find signals driving short term momentum or mean reversion. Price or volume are not auto regressive. Quants are just fundamental analysts without a thesis but with more data.
More cynically, it's really hard to do quant well (and even if you can, you strategy might be capacity constrained), but it's a good selling point to investors, so a lot a fundamental managers are trying to rebrand as "quant-amental" which really doesn't mean anything but might sound good when raising capital.
Bump
I see you're also eyeing the fundamental roles at DE and TS haha
I do the above mentioned role - this niche started a few years ago at Jane St, spread to SIG/Optiver, now most quant firms are expanding or hiring a fundamental analyst team (see HRT, CitSec, Jump, QRT, IMC, Old Mission, Mako, DV etc) - headcount across the industry must have 10x'd this year alone, firms are clearly finding ways to make money
have a question about one of the firms you listed, mind if you pm me or I pm you? Thanks!
Thanks for the response. Could you explain a little more what you’re doing at the firm? And how much it differs from traditional research?
it is entirely different from traditional research. Coverage is a lot wider and often multi-asset, much more intense. From friends, it seems it varies significantly how analysts are utilised by firms - at mine, you are effectively a mini- PM taking delta / vol bets across products in a (mostly) delta-neutral firm
Comp is roughly the same as QTs for the first 5 yrs, have PnL and payout %
Think it's Stephen Irvine heading up the Fundamental team at QRT. Quite an odd character. He spent better part of an hour at a buyside dinner talking down Balyasny (where it turns out he was let go by Dimitry). They replaced him with a younger Citadel guy. Seems to have a bone to pick with them since. Started his own firm which didn't do well, then got the QRT gig.
The way he explained it, each person in the fundamental team need to make time for helping quants tag their datasets from a fundamental perspective to aid QRTs main profit making engine which is the quant side that has been doing well. They keep you "engaged" by having you research a bunch of companies in your coverage. They will pay you a below market base, no formulaic payout, or any dedicated GMV.
Basically, they decide for you what the exposure should be in your coverage - your job is to provide buy/hold/sell recommendations on a scale. Bonus is at their discretion.
Stating the obvious, seems to be a place you go if you're lacking options given how economically subpar the value proposition is versus the traditional multi-managers.
Would note this is not at all what SIG/Optiver/CitSec utilize fundamental analysts for. At these shops - analysts have PnL and actively contribute trading ideas. Btw CitSec pays analyst 250K base.
Kinda true. The job is for you to mantain target prices for the stocks you have and firm decides how those forecasts are sized up. You get paid based on how your forecasts do over time but all discretionary. It’s abit like MW TOPS except they have their own field of analysts instead.
Never even heard of this. It’s not some MW TOPS thing, it’s analysts literally putting positions on. There’s no sell-side like ratings distribution at the shops who actually use analysts.
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