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Hedge fund strategies: Don’t shoot the quant guys!

Quantitative investment strategies are valid, says report.

Max Darnell, First Quadrant

"There are good reasons for all investors to be adopting certain types of quant tools in their work. I think sadly a lot of people walked away from this with a more limited version of what quant firms do"
Max Darnell, First Quadrant

The apparent free fall of the some of the world’s most respected quant shops in August has tarnished a whole section of the hedge fund industry. But is quant as an investment strategy to blame? A recent theory put to the industry by MIT’s Andrew Lo and Amir Khandani is that the quantitative nature of the losing strategies’ significant losses experienced during the week of August 6 was purely incidental.

On August 7, 8 and 9, long/short equity market neutral strategies, or statistical arbitrage strategies, seemed to fall through the floor. Renaissance Technologies, AQR, BGI’s 32 Capital Fund, Black Mesa Capital and Highbridge, to name but a few large quant players, were all hit hard and reported to investors significant losses over the period. By the end of that week, most were down 7% on the month from those three days, some by as much as 18%.

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