For the last who-knows-how-long, the big thing in hedge funds has been that everyone and their dog wants to be a quant. It's not just the ones you'd expect to reach out with both hands at the latest (legal) cash grab – like Steve Cohen – even old-school types like Paul Tudor Jones and Larry Fink have are shrugging and throwing their lot in with the MIT crowd.
At this point, though, the trend is approaching the comical. As the Financial Times reports, the latest entity to try on the garb of the quant is international cargo giant Maersk:
Maersk Tankers has invested in CargoMetrics, a quantitative hedge fund backed by the likes of Paul Tudor Jones and Google’s Eric Schmidt, in order to utilise its shipping data and analytical models to improve the deployment of its fleet of vessels.
The Copenhagen-based tanker company, which is part of Danish shipping group AP Moller-Maersk, has taken an undisclosed but “significant” stake in the Boston-based hedge fund set up by a former US Coast Guard officer and in return will gain exclusive access to its data and algorithms.
There are some obvious synergies here. Maersk has literal boatloads of data to hand over to whatever algos CargoMetrics uses to turn raw numbers into dollar signs. And CargoMetrics has assembled a massive proprietary database of shipping intel that could help Maersk get an edge on its competition.
But the partnership raises interesting questions about how CargoMetrics gets its alpha. The basic idea behind this kind of fund is that real-world markets contain all sorts of inefficiencies that financial markets can't grasp with the standard tools. By isolating frictions inherent in such a massive and tangled industry, CargoMetrics finds arbitrage opportunities no one else can see.
But what happens when it starts helping the biggest player in the game be more efficient? Presumably some of the hedge fund's current opportunities have to do with Maersk's enormous fleet. If Maersk starts using CargoMetrics data, does alpha dry up?
CargoMetrics has of course already thought of this, and clearly it's not an issue. Maybe knowing that Maersk is using its numbers gives the fund even greater insight into the workings of the global shipping industry, a sort of meta-alpha. But that might also set up a game-theory-esque situation in which CargoMetrics sees an arbitrage opportunity that requires Maersk not knowing something CargoMetric does know and hasn't (yet) shared. Then the fun begins.