March 2007
Equity markets: Hedge funds turn to algorithms for alpha
Use is increasing across the securities industry.
More and more quantitative hedge funds are turning to mathematical algorithms as a way to generate absolute returns as traditional alpha opportunities become harder to find. Market participants say pure quantitative-driven funds are proliferating. Last month, for example, Caymans-registered algorithmic trading fund Olive Tree Capital opened for business. Its chief executive, James Casper, says he believes algorithms can offer some of the best outperformance opportunities for hedge fund managers at the moment. "We look at approximately 500 algorithms on a yearly basis, of which we probably filter out over 99%," says James Casper, the funds chief executive.Olive Tree is a multi-strategy fund investing in a range of liquid asset classes. Casper says the simulated trade results for the past five years show an average yearly return of above 20%, with drawdowns of less than 5%. "Were looking to put in place short-term trades only,...
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