Is there Alpha left for traditional investors?
In the future, 5-10-15 years, will there be significant alpha left for traditional non-quant managers? If so, which spaces are best poised for aspiring traditional managers - equity l/s, distressed, macro, etc.
As in incoming IB analyst I’ve always been interested in the HF route but since so many successful funds are using algos in some capacity, either entirely (rentech) or as augments (bridgewater), and I don’t have any coding skills, I’m a bit worried about long term viability for me.
no app the alpha is gone :0
I believe yes, but it will require specialization. For example, only going long and short gold miners. Many quants make broad assumptions across industries. Therefore, you can create an informational edge through specialization.
Putting a turd under a microscope doesn’t change it into a diamond
I don't understand your comment. You can go long and short or overweight and underweight specific companies within a sector. Therefore, finding a turd is great because you can be against it.
Alpha exists, it's just often lost through over-diversification or some sort of emotional bias (like the endowment effect). This is a decent review: https://www.institutionalinvestor.com/article/b1hxzwxndzj7rc/Active-Equ…
It's counterintuitive to the strategies of the big value guys who say buy and hold forever. I guess it all depends on the alpha measurement period. One year is too short. 5 years of performance gives a better picture of traditional asset managers relative to their benchmarks.
Why not take a contrarian view? If everyone and their uncle is crowding into quant these days, why wouldnt the quant alpha also fade away?
I used to work at a top long/short fund and now work at one of the well-known elite quant funds.
The returns of the quant fund make long short investing look like kind of a complete joke to be completely frank with you. Not all of the best quant funds publish their returns and there are others that have rentech-like returns that people just don’t know about (sometimes they don’t take outside capital so this fact remains a secret). They also don’t work nearly as hard as their long/short equity counterparts. I know this is painful to hear but I actually think the analyses the quants do are just as simple as what long/short analysts do, though there is often a very little bit more math or programming involved (stress on the little part). The reality is that certain parts of the quant world are just far less competitive whereas long/short is just more competitive.
I didn't know you could go from a LS fund to a quant fund, how easy or difficult was the transition? Did you major in STEM in UG but wanted the fundamental experience, just felt at the time it was more applicable to your career goals or wanted to use it as a steeping stone?
While it is true that many quant funds prefer candidates from STEM background, it is a preference and not a strict rule.
I work in the quant equity space and it is not uncommon to have colleagues who transitioned over from fundamental LS. Main hurdle in transitioning is to pick up basic programming skills, which is hardly a challenge these days with high level languages like R and Python.
We ask this question every day. So it’s yes
This thread requires a heavy does of reality. Look at the MMs such as Millennium, Point72 who have a range of different pods/teams under them. It is more than coincidence that many of their biggest (in terms of AUM) and better performing teams in recent years are the traditional type.
For a solid example, just look at the disparity in performance between Cubist vs Point72 in recent years and especially the recent months.
I don't think the quants are really replacing the traditional managers, that is more of a myth. The relation is more of a complementary one.
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