Hedge Fund Startup Turns to Crowdsourcing to Pick Top Trades
(Bloomberg) -- As industry giants sweep up hedge-fund talent, a startup led by former Ivaldi Capital chief Will Potts is turning to crowdsourcing for investment ideas.
Potts plans to start a hedge fund at his London-based firm Higher Park in March with more than $100 million. Unlike his previous company, where he ran a team of money managers to invest as much as $3.5 billion, he is banking on a tech platform using reams of data to identify winning bets from seasoned and aspiring traders.
“We’re trying to Moneyball a little bit,” Potts, 43, said in an interview, referring to the use of novel statistical methods to elevate a struggling baseball team to a title contender, a story captured in the Michael Lewis book and movie “Moneyball.”
Potts’s team developed the platform -- Upside Technologies -- to source, monitor and refine investment ideas from everyone including university students, research from banks such as Goldman Sachs Group Inc., portfolio managers and analysts. Higher Park will create its portfolio based on the efforts of thousands of people evaluating tens of thousands of companies.
The move shows the length to which startups are being forced to go. While raising money and managing costs are a challenge, new funds are under constant pressure to find and retain staff amid a fierce battle for talent with existing firms. They’re vying with the likes of Millennium Management and Citadel, industry giants who are poaching talent from peers.
“It’s hard to run a multi-manager business in competition with some of the big guys who are constantly hiring armies of people,” Potts said. “We could not hire 20 people and fire 15 of them if they didn’t work out, that just didn’t make sense from a commercial or cultural point of view.”
Potts is returning with his new firm after closing Ivaldi in 2018 after his largest investor pulled out for reasons unrelated to performance. Ivaldi started with backing from an unidentified Swedish pension fund and Citigroup Inc. owned a minority stake in the firm. Its fund was up 13% in the year before closing, beating rivals.
Some of the quant firms such as billionaire Steven Cohen-backed Quantopian and WorldQuant, which invests money for Millennium, have also used thousands of external people to create algorithms and spot trades. Higher Park is trying to bring the approach to fundamental investing.
While the business model doesn’t save Potts from losing his portfolio managers to bigger rivals, he expects to build a large pool of ideas and talent to keep his business going. Some will get retainership similar to their salary and a cut from profits on their ideas, while others will get just a share of the gains. Contributors will get their track record, something many large funds don’t allow.
“We are trying to find out that middle market of portfolio managers and analysts, the up and coming number two superstars that are trapped elsewhere, all those that have been run over and discarded for the wrong reasons,” Potts said.
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