Stan Druckenmiller

  • Quants and data scientists are going to be on the top of hedge-fund managers’ wish lists in 2019, recruiters say, despite poor performance from some of the most well-known quant funds in the space.
  • Systematic strategies, which trade on algorithms, have also been under attack from old-school traders, such as billionaires Stanley Druckenmiller and Leon Cooperman, who say the strategies distort market signals.
  • Poor performance in 2018 from quant funds big and small will make it possible for managers “to get top talent on the cheap,” said one industry observer.

The quants developing algorithm-driven funds are the latest bogeyman old-school stock-pickers have pointed to for why their returns have been increasingly scarier, but that isn’t stopping managers from recruiting their own.

Billionaire old-school traders Stanley Druckenmiller and Leon Cooperman have said the recent jolts of the market are the fault of computer-controlled trading, labeling the market unpredictability a “nightmare” and a “Wild West environment,” respectively. Cooperman even called on the Securities and Exchange Commission to investigate quants in a CNBC interview earlier this month. 

Yet recruiters and industry experts say 2019, especially the first half of the year, will be a battle between the biggest hedge-fund names for top quant talent, even after systematic funds’ poor 2018 performance. Quant funds underperformed the average hedge fund in a bad year for the industry, declining 2.83% compared to a 2% drop overall through November, according to Hedge Fund Research. 

“The appetite for good quants and good technologists is and will be incredible,” said Vikram Tandon, an industry headhunter who has worked for Options Group and Executive Search. 

As shops hunt for differentiated data sets and new strategies to squeak out market-beating returns, funds need people who can put these new, and often expensive, tools to the correct use, said Larry Newhook, CEO of the managed-account platform Alpha Innovations and former due-diligence head for Steve Cohen’s Point72 Asset Management.

“In order to generate alpha, you need to use every tool in the toolbox,” Newhook said, adding that managers who would never be considered quants are bringing on analysts to their teams that run quantitative models. 

“Days are gone when you could simply be in one bucket or the other,” he said. 

That systematic strategies, which manage roughly $1 trillion in assets, have any momentum at all going into 2019 is telling of their staying power. Critics say the strict trading rules exacerbate dips and rises in the market while several large players have had poor returns in 2018. 

Cliff Asness, the co-founder of AQR and one of the original quant managers, tweeted that “most quants hate 2018 too” in response to criticism that him and his peers were warping the markets. He also points out that quants made up a sizable chunk of the market during the long, low-volatility bull run prior to this year.

The poor 2018 performance by quants though will make it easier for managers, especially large multi-fund firms like Millennium and Citadel and stable quant shops like AQR and Renaissance Technologies, to recruit top talent, said Newhook .

“The ones that are big enough to survive this year, they can pick up talent on the cheap,” he said. 

There has already been some movement, as a top portfolio manager from Steve Cohen’s quant arm Cubist resigned earlier this month. Dmitry Balyasny also cut a majority of his quant team in early December as a part of a 125-person purge as his firm, Balyasny Asset Management, is facing poor performance and steady withdrawals. 

And with the new datasets crowding in all the time, every manager will be in steady demand for this type of talent.

“How people think about things have changed, there’s so much more of a focus on technology now,” Tandon said. 

“It’s going to be a major, major theme for next year and probably the next few years.” 

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