Selling an algorithm to hedge funds?

This question is on behalf of my friend.
My friend is at university and is part of a hedge fund startup that has raised £5m in capital.
The hedge fund consists of phd students. They have developed an algorithm.
This algorithm has got the seal of approval from professors including a Nobel laureate.
They have priced the algorithm in the region of 10's of millions and they want to sell it to a hedge fund.

My friend gets a reasonable cut, in the regions of millions, if the algorithm gets sold.

How likely is it he will be able to sell the algorithm?
Would hedge funds or Asset Management be interested in this?

 

I feel like a licensing deal would be the only thing on the table. Even if you've validated it to some extent, we all know the future is unpredictable. I'm not sure how you get to millions in value unless it's literally thousands of manhours of development wrapped in a nice analytics UI or something.

 

Seems as if earnings potential from simply getting some money under management and using it yourselves would be far higher than the couple tens of millions a hedge fund might pay you for it...also...I highly doubt they'll let you keep it for yourselves as well as selling it to them...not unless it's either really not that great or they pay you almost nothing for it.

"When you stop striving for perfection, you might as well be dead."
 

Seems unlikely. If you can prove it works you can probably convince a hedge fund platform to give you some capital and let you run it while keeping a cut of the profits. If you prove it really works (e.g. make money from it, not just backtests) maybe then you can sell it, but you'd probably be better off just going to a platform and getting the capital to trade either way. Part of the risk here is that the market is ever changing, and no one is going ot want a static algorithm whose creators wont be there to modify as needed.

 

Yes, you can "sell it" for 15% of your P&L....if the following conditions are met

1) max intra-period drawdown in backtest of 5% (including thru 2007/2008-->2020) 2) you trade the strategy in your own account with that 5m of real money at a broker like InteractiveBrokers, for 1 year and achieve the stated returns and risk parameters (you will have to show the IB daily returns to the fund as proof of forward testing)

After doing this, then you will be able to "sell" your strategy/algorithm for 15% of its P&L going forward (you'll also have to work at the fund and implement the algo yourself).

 

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