The hedge fund world has been evolving dramatically over the last few years.
Just like in other industries, software, data and AI/ML have been playing an increasingly important, and disruptive, role. Many hedge funds have been scrambling to embrace this evolution – not just to gain an edge, but also to avoid becoming extinct.
Certainly, quantitative hedge funds have been making heavy use of software and data for a while now. The “quant” funds rely upon algorithmic or systematic strategies for their trades – meaning that they generally employ automated trading rules rather than discretionary (human) ones, and they will trade tens or hundreds of assets simultaneously.
But another big part of the industry, the “fundamental” hedge funds, had been operating very differently. Those funds will perform a bottoms up analysis on individual securities to value them in the marketplace and assess whether they are “undervalued” and “overvalued” assets. They’ll often have a much more concentrated portfolio.
In part because the entire hedge fund industry has been performing generally poorly recently (years of performance trailing the stock market), there’s been mounting pressure on hedge funds to evolve rapidly, particularly fundamental ones.
A couple of years ago, Third Point made a big splash when they hired Matt Ober, who was 32 at the time, to become their Chief Data Scientist. Dan Loeb, the billionaire founder of Third Point, was a prime example of a fund manager who had reached tremendous success through a fundamental approach. His efforts to hire Matt away from his previous employer and make him Third Point’s head quant was widely viewed as a sign of the times. Continue reading “Data, AI & Hedge Funds: In Conversation with Matt Ober, Chief Data Scientist at Third Point”