Your New Hedge Fund Manager: The Faceless Hordes

Crowdsourced quants are gaining ground.
(Vincent Diamante, Flickr)

(Vincent Diamante, Flickr)

First the floor traders gave way to those sitting at computers. Then the traders at computers lost ground to coders writing algorithms. Now the coders are facing yet another technological threat: the crowd.

Crowdsourced quant fund Numerai got a big new infusion of cash Monday, adding $6 million to its kitty for a valuation of $30 million. Some of that money will be invested in the machine-learning algorithms submitted by its anonymous horde of contributors. The best submissions win cash awards.

Meanwhile a similar fund called Quantiacs has attracted “single-digit millions” for its own crowdsourced investment strategy, the FT reports. Quantiacs functions more as a marketplace for individual quants' strategies. Outside investors pick and choose between them.

Are quants doomed to join the faceless masses of the gig economy? Not so fast, the FT says.

Established quantitative hedge fund managers mostly shrug at the small batch of crowdsourced rivals, arguing that even hundreds of smart people working in isolation across the world cannot compete with the accumulated and co-ordinated brain power deployed by the industry’s biggest firms.

And even if DIY algo traders discover a profitable signal from the noise of financial markets, it is very hard to scale most strategies up, they say.

Still, the biggest names in quantitative trading have put money behind the upstarts. Renaissance Technologies co-founder Howard Morgan invested Numerai while Steve Cohen’s Point72 dumped some $250 million into Quantopian – one of the largest of the bunch. Two Sigma has also gotten in on the act, holding a quant competition as part of a recruitment drive.

Watch out, quants! Here comes everyone.