Monday, April 28, 2008

Is there a future for Quant Funds

It appears the Quantitative Funds have been stranded on the lee shore, and a crowd is desperately trying to find a way to shove the ship off the beach. Even if re-floated the quantitative industry is mired in a cross-wind about its future direction; not knowing whether to tack or jibe in order to catch air in the sails.

The recent draw-downs during the credit crunch have raised the question if the mathematical wizards can navigate the waters; or if the conjurers would be better off safely ashore teaching theory at a university. Is there even a future afloat for these funds? The trends of lower cost IT, more powerful computers, mountains of instant data, and new modeling techniques can play both for and against these funds. The bottom line is that a proper definition of risk still haunts the players.

Earlier HingeFire articles (see Quants search for new math) discussed the confusion as these funds search for a new formula that will pull alpha out of the market while not leaving the funds sunk every few years. The current methods have proven to be more akin to gambling than investing.

Advanced Trading recently addressed the fund dilemma - Quants Searching for Alpha: Do the Pros Outweigh the Cons?