It is no secret that quant funds (and a number of what we will call "quasi-quant" funds) as a whole have taken it on the chin the last several months. Funds with heavy quant components of neutral equity market strategies, for instance, have been handed their mud-stomped hats in 2008- many with 40%+ losses in November alone. Some subsets of neutral equity market strategies, fundamental long-short strategies for instance, have performed slightly better, but overall, you would have done better investing in the S&P 500 index for 1 month, 3 month, 6 month, 1 year, 2 year, 3 year and 5 year periods than touching most neutral equity market funds.
But fear not. Quants, according to Reuters, have a place in the Aisle 5 cleanup taking place in the financial service supermarkets.
Many of these so-called quantitative analysts, or "quants," graduating from elite financial engineering courses will end up writing computer programs that handle an ever greater share of market trading.
Because some of their mathematical models failed to take into account factors that later turned out to be crucial, quants have been blamed for compounding risk and exacerbating the crash in financial markets.
But far from going into decline, those with financial engineering degrees are still in demand as hedge funds and banks seek ways to measure previously unforeseen risks and factor them into their models.
Of course, doomsayers of the world (we are looking at you Taleb) have been doomsaying for a long time, so its pretty easy to take credit for the dip when you have been calling for a dip for 10 years, but quants make such easy targets. The deep stereotypes (pale skin, socially inept, Star Trek fans, or Star Wars fans, we understand the two divisions are in the midst of a blood feud at this very moment) make them subject to ridicule and scorn. But we'd like to be the first to call for a major resurgence of the quants. Seriously. We can summarize the thesis easily simply by quoting a drunk quant heard raving in the street outside of Marquee just this last weekend.
"Whatcha gonna model with then? Huh? Whatcha gonna use? Option pricing? Huh? I got your normal distribution right here. You are stuck with it. You got nuttin' else. NUT-IN."
Ok, it's true that, the douchebag trader (who looked suspiciously pink-slipped now that we remember it) immediately cracked him in the nose and dropped him with the first punch.
Still, from the gutter, through the now freely flowing blood, the quant gurgled "You can't win. If you strike me down, I shall become more powerful than you could possibly imagine." I think we all know that he's right because, come 2009, that quant will be busily honing the details on the next killer model that will inflate and dramatically explode the construction, and transportation sectors in the massive infrastructure bubble that is just over the horizon.
Buffeted "quants" are still in demand [Reuters]