top quantitative hedge funds _ street of walls.pdf

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6/23/2014 Top Quantitative Hedge Funds | Street Of Walls

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TOP QUANTITATIVE HEDGE FUNDSof Quantitative Hedge Fund Training

Overview

New Hedge Fundsare being established on a daily basis (and often, it seems, are shuttered equally quickly). However, there are several prominent Quant Hedge Fun

record, and while longevity is no guarantee of future stay ing power, these firms are considered leaders in the Quant Hedge Fund space:

D. E. Shaw

Quantitative Management Assoc iates

Two Sigma

Renaissance Technologies

AlphaSimplex Group

Capula

AQR Capital

PanAgora

Acadian Asset Management

This list is by no means exhaustive. For example, many multi-strategy hedge funds, while not typically known as Quant Hedge Funds, have significant quantitative

their platform. Consider Highbridge Capital Management, a $29B diversified investment platform comprising hedge funds, traditional investment manageme

investments with longer-term holding periods. Among other strategies, Highbridge offers Convertible Bond Arbitrage and Statistical Arbitrage funds, which

quantitative strategies than some of their other product offerings, which include credit and global macro investments.

Additionally, keep in mind that f irms other than Hedge Fundsrun quantitative trading strategies. Many large banks do, via proprietary trading divisions. Howev

Volcker Rule, banks are limited in the types of investment activities they can engage in. As a result, many quant trading strategies have been moving and likely w

trading desks at the banks to banks asset management arms.

(NOTE: All information is taken from company websites unless o therwise indicated.)

D.E. SHAW

Founded:1988

Based:New York City

Employees/Size: 1,100/ approximately $26 billion in investment capital (as of March 1, 201 2)

Description: The firm has a significant presence in many of the worlds capital markets, investing in a wide rangeof companies and financial instruments within bo

and a number of emerging markets. Its activ ities range from the deployment of investment strategies based on either mathematical models or human expertise to th

and the financing or development of new ones.

Strategies:The firms quantitative strategies are for the most part based on:

the use of mathematical techniques to identify profit opportunities arising from subtle anomalies affecting the prices of various securities;

the application of proprietary models designed to measure and control various forms of risk;

the use of quantitativ e techniques to minimize the transaction costs assoc iated with the purchase and sale of securit ies; and

the utilization of proprietary optimization technology to construct dynamically ev olving investment portfolios based on these profit opportunities, risk factors

In the course of identifying profit opportunities, the D. E. Shaw group analyzesan enormous amount of data associated with tens of thousands of financial instrume

associated with any one such instrument. Data is obtained from many countries throughout the world, and covers a wide range of asset classes. When this analytical p

believes to be o f predictiv e value, it becomes eligible for deployment within one or more trading strategies, in some cases along with a dozen or more other models in

instruments, but arising from different market anomalies.

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The firms proprietary optimization technology was designed with the objective of maximizing expected return while controlling the aggregate risk associated with

include simultaneous positions in several thousand securities. Rather than consider each transaction in isolation, the firms portfolio optimization software is

interrelationships among a large set of financial instruments that may range over a number of different asset classes. In many cases, the firms optimization algorith

returns not only through conventional diversification, but by establishing offsetting exposures to various risk factors at the portfolio level.

Portfolios are often reoptimized on a more-or-less continuous basis, with a steady streamof trades executed to take advantage of newly emerging potential profi

various forms of dy namically v arying risk. Time-sensitive trading decisions are often made v ery rapidly using real-time data obtained from v arious sources throug

The firm trades on nearly a 24-hour basis, and typically executes tens of thousands of transactions per day.

QUANTITATIVE MANAGEMENT ASSOCIATES

Founded:1975

Based:Newark, NJ

Employees/Size: 36 investment professionals (plus additional office staff)/approximately $ 83 billion in assets under management (AUM) as of March 1, 2012

Description: We see investment potential in small but widespread mispricings of securities. Activ e strategies can play a key ro le in meeting investment objectiv es

from values implied by underlying fundamentals, and active management can improve returns by positioning a portfolio to profit from an eventual return to funda

values create opportunities that our processes are designed to identify and exploit. Bec ause these are patterns that persist over time, rather than fleeting trends, we a

continue to outperform over the long term.

Our bottom-up approach combines the principles of valuation theory and behavioral finance with the skill and judgment of our investment professionals. Team

investment experience and bringing diverse perspectiv es, including university prof essors, engineers, physic ists and economists have worked smoothly togethe

conditions.

Our proprietary optimization process generates diversified portfolios across a large number of stocks. And by constraining risks such as size, sector/industry, and

vigilantly focusing on liquidity and transactions costs, we believe we can target alpha generation more effectiv ely.

QMAs investment approach is sensible and sound-but not static. Through ongoing research, we continue to find ways to enhance the adaptive nature of our investme

Strategies:

Quantitative Core Equity

Value Equity

Equity Indexing

Asset Alloc ation

Structured Equity

TWO SIGMA

Founded:2001

Based:New York (Hong Kong, Houston and London satellite offices)

Employees/Size: About 300 (estimated)/several billion dollars (May 2012)

Description: We have been successfully applying our disciplined, process-driven investment trading strategies since 2001 . T hese strategies, which are expresse

classes, are based on statistical models developed using rigorous mathematical analysis and the industry insight of Two Sigmas large and experienced team. Develo

computational resources to successfully identify, quantify and act on market opportunities while closely monitoring risk exposure.

Technology is an integral part of the trading strategies, corporate functions and life in general at Two Sigma. To us, technology is a profit center, not merely a cost it

force behind our company structure. Each day, we work in small teams to develop and improve analytical and measurement tools for the financial markets, a

structure that seems rare in the financial field. In fact, many have observed that we look and feel a lot like a software firm.

RENAISSANCE TECHNOLOGIES

Founded:1982

Based:Long Island, New York, London

Employees/Size:275/$15 billion

Description: Renaissance Technologies LLC is an investment management company dedicated to producing superior returns for its clients and employees

statistical methods.

ALPHASIMPLEX GROUP

Founded:na
http://www.alphasimplex.com/http://www.rentec.com/%E2%80%8Ehttp://www.twosigma.com/about.htmlhttp://www.qmassociates.com/


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Based:Cambridge, MA

Employees/Size: 28/na

Description: AlphaSimplex specializes in absolute-return investment strategies that are implemented primarily with futures and forward contracts. Using leadin

unique approach to investing provides the adaptability and contextual decision-making usually associated with fundamental managers, but within a purely quanti

Each of the firms investment strategies is based on a multi-model approach to portfol io management that seeks to generate alpha with greater consistency and tha

newly developed models.

Strategies: Quantitative Global Macro is a multi-model quantitative global macro strategy that relies on a diversified set of factors across many different markets.

up the product have been developed over a number of y ears and a diverse set of market environments. For any given market environment, there are at least one or t

generate alpha for that specific environment. T he manager uses advanced statistical techniques to dynamically weight the component models to most effectively expl

Global Tactical Asset Allocation is an extremely capital-efficient overlay or portable alpha strategy whose target is to add an incremental 1 or 2 percentage point

without increasing the existing portfolios vo latility by more than 1 or 2 percentage points annually. The strategy can also be managed at higher risk levels to generate

LASER and GLOBAL ALTERNATIV ES use futures and forwards to replicate exposures to a diversified set of the most common liquid risk premia driving hedge-fu

similar diversification benefits as a fund of hedge funds, and is well-suited for large institutional investors who cannot otherwise find adequate capacity among h

buffer with an otherwise less liquid portfo lio, and for smaller investors who would not otherwise have access to the diversificat ion benefits of hedge funds

requirements.

CAPULA

Founded:2005

Based:London (Greenwich, CT and Tokyo)

Employees/Size: Under 50/$9B (2011)

Description: Capula Investment Management LLP is a global fixed income specialist firm. The firm manages fixed income trading strategies in absolute return an

along with a tail risk hedge product. Capula Investment Management LLP focuses on developing innovative investment strategies that exhibit low correlat ion to t

markets.

What differentiates Capula is its macro focus, strong trading discipline and short-term orientation rather than a medium-term investment style. The f irms understan

has helped it thrive through all stages of the investment cycle, including periods of extreme market disruption. The Capula GRV Fund is focused on interest rates an

in relative value and conv ergence strategies that seek to exploit pricing anomalies in the government bond, interest rate swap and major exchange traded derivative

macro overlay. Investment themes are primarily driven by alpha generation and are intended to stay neutral to directional moves in major c apital markets. The Capu

of instruments primarily in G7 markets. It targets superior returns in times of liquidity and systemic crises while minimizing downside during normal market c

managed in the proprietary trading style.

AQR CAPITAL

Founded:1998

Based:Greenwich, CT

Employees/Size: 190/$4 4B (end 2011)

Description: AQR Capital Management is an investment management firm employing a disciplined multi-asset, global research process. AQRs investment prod

set of collective investment vehicles and separate accounts that utilize all or a subset of AQRs investment strategies. These investment products span from aggres

hedge funds, to low volatility benchmark-driven traditional products. Investment decisions are made using a series of global asset allocation, arbitrage, and security s

using proprietary trading and risk-management systems. AQR believes that a systematic and disciplined process is essential to achieve long-term success in inv

addition, models must be based on solid economic principles, not simply built to fit the past, and must contain as much common sense as they do stat istical firepower.

PANAGORA

Founded:1989

Based:Boston, MA

Employees/Size:50-200/$22.3B (end 2011)

Description: PanAgora is a quantitative-based investment management financial institution that utilizes both bottom-up stock selection strategies, as well

strategies. We seek to provide investment so lutions using sophisticated quantitative techniques that incorporate fundamental insights and vast amounts of mar

investment strategies are highly systematic in nature, the processes deployed within these strategies are built and overseen by talented professionals with significant

Innovative research plays a c entral role in our investment philosophy and process, and is an essential component of our firms ability to deliver attractive investme

organized into an Equity Strategies group and a Multi Asset Strategies group. Most investment team members are engaged in original research using fundamental int

finance and scientific methods.
http://www.panagora.com/http://www.aqr.com/http://www.capulaglobal.com/


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Quantitative Trading Strategies

PanAgoras investment strategies are based upon these guiding principles:

Capital markets are not perfectly efficient and therefore present attractive investment opportunities for disciplined investors.

Innovative research that blends creativity with modern financial theory and statistical techniques (art and science) is the foundation of a successful investment

A systematic approach to investing that combines intuitive, fundamental thinking with quantitative techniques is likely to generate persistent, and attractive ris

Attention to risk and efficient implementation may preserve and often enhance performance results.

Clearly defined objectives, transparency, and access to talented investment professionals helps to achieve client satisfaction.

ACADIAN ASSET MANAGEMENT

Founded:1987

Based:Boston (Singapore and London)

Employees/Size: ~200-500/$48B (3/31/12)

Description: Acadian has a rigorous and structured investment process. We quantify most aspects of our investment process, including the excess return we belie

universe will generate over a particular horizon, and the risk we expect a particular portfolio to experience relative to its benchmark. The objective of this no

quantitative approach makes sense, and what advantages and disadvantages such an approach has relative to more traditional approaches. We believe that quantita

ways of apply ing traditional approaches to making investment decisions in a disciplined and systematic way. T hus our approach to investing is not at odds with a trad

tools many traditional portfolio managers use, but attempt to apply them in a very sy stematic and disciplined way, avoiding emotion and slippages in implementation.

Acadian specializes in active global and international equity strategies, employing sophisticated analytical models for active stock selection as well as peer gro

valuation. We also o ffer fixed income strategies in the emerging markets. Our pro prietary database cov ers ov er 4 0,000 securities in more than 60 markets world

capabilities are used to develop customized investment management strategies for our clients.

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