It’s Been a Rough 2018 for Many Quant Hedge Funds
Quant funds, which use complex algorithms to navigate markets, have suffered because of the rise in volatility.
(Bloomberg) -- Many quant hedge funds -- young and old -- are struggling to make money this year.
Manoj Narang, who started his hedge fund last year, saw his biggest investor, JPMorgan Chase & Co.’s asset management unit, pull its money. Renaissance Technologies, the world’s most profitable hedge fund, is trailing its benchmark in one fund this year through mid-June. Jaffray Woodriff, who runs Quantitative Investment Management, lost 35 percent in his tactical aggressive fund this year through May.
Quant funds, which rely on complex algorithms to navigate global markets, have suffered this year because of the rise in volatility. They were caught flat-footed in February when markets turned turbulent on concern over rising interest rates, followed by trade wars with China and the election in Italy. The troubles come as more hedge fund managers including Dan Loeb and Philippe Laffont are upgrading their technologies for trading, employing data scientists and computer coders.
Little Known
Narang has struggled almost from the get-go. Little known in the hedge fund world, the high-frequency trader had lined up about $930 million from investors for his Mana Partners in New York. Narang, who sought to combine high-frequency trading and statistical arbitrage, wagered less than $400 million, lost 8 percent last year and parted ways with his investment chief.
Narang confirmed that JPMorgan withdrew its investment, and the bank declined to comment.
QIM’s rough year comes after a stellar 2017 for its long-short tactical fund, when it gained 60 percent. The fund is up an annualized 16 percent since inception in 2008, according to an investor letter seen by Bloomberg. Woodriff’s firm in Charlottesville, Virginia, assembles thousands of mathematical formulas through machine learning in making trades. A spokesman for the firm declined to comment.
Not Immune
Some of the biggest quant funds haven’t been immune to the woes facing their smaller rivals this year. Renaissance’s fund that bets on rising stocks, Renaissance Institutional Equities Fund, has eked out a 1.8 percent gain this year through mid-June, according to an investor document seen by Bloomberg. The fund, known as RIEF, is designed to outperform the S&P 500 Index, which has gained 4.9 percent in the same period. The fund also trailed the benchmark last year. The firm declined to comment.
Leda Braga’s $8.1 billion quant hedge fund, Systematica Investments, has lost money this year, while David Siegel and John Overdeck’s Two Sigma also posted declines in one of its funds this year before recouping them last month.
--With assistance from Hema Parmar.
To contact the reporters on this story: Saijel Kishan in New York at skishan@bloomberg.net;Vincent Bielski in New York at vbielski@bloomberg.net
To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Mary Romano
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