• 09 Nov 2007 at 3:22 PM
  • Quants

Another Quant Liquidation Under Way?

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Two days ago, we told you the there were widespread rumors that a large quant fund—possibly AQR Capital Management—might have run into some liquidity problems. Yesterday the post reported that the Greenwich-based hedge fund had scrapped its planned initial public offering after a dismal performance caused several large investors to pull their cash out of the fund. AQR hasn’t returned our calls. Time to move this story ahead despite the, uhm, lack of actual information.
Watching the markets move in the last few days—particularly with the heavy sell off in the NASDAQ—has many wondering if we’re witnessing yet another quant liquidation like we saw in late July and early August. It would make sense that if one or more funds was facing redemption notices from investors, we might see a sell-off of typical quant positions in order to raise cash. Last time around, stocks the quant funds tended to be long in plummeted, while their shorts rose. It is now part of the conventional wisdom that some of this was due to one or more quant funds liquidating both long and short positions.
So how are the heavily shorted stocks doing? Pretty good, as it turns out. Unless you are short them. Indymac BNCP, Nutrisystem, MGIC Investment CP, KB Home, MVRLP, Ryland Group, and CROCS Inc. are all up today despite the declines in the broader market. The Amex Broker Dealer index is up nearly 1.5%. With this many heavily shorted stocks rising together, it’s at least possible that some of the movement in the markets this week has been due to another quant liquidation.

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    Comments (13)

    1. 1
      Posted by Anonymous | November 9, 2007 at 3:33 PM

      cmon what about PMI, its up like 40%. a little love please?

    2. 2
      Posted by Quantster | November 9, 2007 at 4:23 PM

      I think you losers should shut up as all of our quant strategies are rolling serious dough this month and some of our models are similar in idea to AQR (They should be fine too)

    3. 3
      Posted by Anonymous | November 9, 2007 at 4:25 PM

      I agree with Quantster. these markets have been very good for AQR type strategies.

    4. 4
      Posted by John Carney | November 9, 2007 at 4:36 PM

      We’re just speculating. As we said, we’ve got no insider information. Just facts and guesses.

    5. 5
      Posted by HDog | November 9, 2007 at 6:13 PM

      I doubt a VALUE and momentum strategy would own GOOG, AAPL, and RIMM. And everyone knew AQR was pulling the IPO a loooong time ago. Just look at shares of AMG who own a piece of AQR’s GP. Up on AQR IPO rumor and then straight back down again.

    6. 6
      Posted by GSBSD | November 9, 2007 at 11:06 PM

      Should we blame the collapse of 7 WTC on the quants too… Many quants did tune down VALUE and go big on MOMENTUM after the August debacle though… and MOMENTUM have been working way too well lately. Anyway, it’s pretty well confirmed that there is a hedge fund delevering going on (NOT necessary quant). It has something to do someone taking Yen-carry a little too far.

    7. 7
      Posted by The Quant Apologist | November 9, 2007 at 11:45 PM

      Come on people! The “models” were in error, NOT THE QUANTS. Quants are sensitive people especially when they are about to lose the quant job with the big honking salary, bonus and the stripper wife.
      When a quant “hits bottom” it makes a crack addict look like the Pope.

    8. 8
      Posted by PBateman | November 10, 2007 at 11:50 AM

      GSBSD – have you seen anything written about this, or just verbal. Hadn’t seen anything confirming a delevering, just hearing speculation.

    9. 9
      Posted by Citi Sell Side Groupie | November 11, 2007 at 9:05 AM

      Yes, I’m sure Heather thought ABK rallied because of her comments….

    10. 10
      Posted by GS bk office | November 11, 2007 at 10:12 AM

      Has anyone else noticed that Goldman has been incredibly quiet about write-offs? We have been HUGE in the RMBS market, and all I am hearing is that bonus’ are huge, life is beautiful… I have a lot of stock & options, and everyone sees life with what appears to be rosey-colored glasses.
      Are we ok, or should I be updating my resume’?

    11. 11
      Posted by Walt French | November 11, 2007 at 11:04 PM

      Or, maybe it could be a good old fashioned short squeeze? A friend mentioned that two financial ETFs had 350% and 450% (or so) short interest, meaning that there could be a LOT of retail short interest very susceptible to overly-aggressive markdowns of the mortgage-afflicted (yes, hard to imagine THAT!) or dead-cat bounces.

    12. 12
      Posted by Quantster | November 12, 2007 at 10:32 AM

      GSBSD, can I work for you? Do you visit wilmott.com/forums often?

    13. 13
      Posted by get a clue | November 12, 2007 at 11:03 AM

      Quantster: That may be the harshest cut I’ve read in months. Wilmott::quants as Cramer::retail.
      Reminds me of the Manhattanite wife I spoke to a year ago. “We just bought our place; real estate is in short supply in New York; and, my [hedge fund] husband doesn’t invest in subprime. So what do we have to worry about?” And thus we find ourselves in a ‘teachable moment’.

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