Hedge Fund's and Quants

[C Ruiz <Cseniornyc@xxxxxxx>]

In a message dated 4/15/2006 8:36:41 P.M.  Eastern Daylight Time,
dsquared@xxxxxxxxxxxxxxxx writes:
It has never  been possible to invest large amounts of money on a purely
algorithmic basis and  IMO never will be; if it was, LTCM would have had a very
different
Comment:  This certainly would come as  shocking news to a lot of people
including :  Nassim Taleb of Empirica Capital; former quantum physics expert
Vladimir  Naroditsky, a managing partner of Vega Capital Group; mathematician Tanya
Beder  formerly of Caxton and now head of Tribeca Global, a spinoff of
Citigroup  created especially for her to apply her quant strategies; David Shaw ,a
well  known computer scientist snatched by Morgan Stanley and now head of his
own D E  Shaw fund; Moorad Choudry head of derivatives at European  KBC
Bank-Financial products, etc, etc, -the list is really long actually-  they  are all
major quantitative financial engineers, specializing in esoteric  techniques
such as stochastic volatility , martingale optimality or linear  option
pricing, who are head of very successful funds or run their own  businesses.
Then you add:
"by this definition, Soros would not be a hedge  fund; nor would Tiger, nor
would Tudor, nor would Gartmore, Vega, GAM, SAC,  or Caxton.  Nor would LTCM,
except a very small part of its  fund"
Comment: I actually didn't define all HF's as quant oriented. To the
contrary, I wrote that "the psyching out and reading market sentiments", as  Henwood
put it, certainly exist and do handle billions.What I actually intended  to
say was that,  within the industry's pecking order, the quants are  granted the
highest echelon by most. I know HF's have existed for ages now, but  they were
certainly reincarnated in the 1980's with the advent of Index  Arbitrage and
the popularity of Option Pricing techniques which involved  mathematical
trading design, of necessity .Nowadays,  with the pervasive  use of derivatives
,they are the financial engineering product of excellence  making  quant input
inevitable since these financial commodities have  to be fine-tuned and
calibrated with precision before they exit the assembly  line, just like a Cadillac
does. And just like it , it need the assistance of  engineers, financial in
this case.
Consequently, all of those HF's you list  above, including Soros' have large
quantitative departments even if they follow  other kind of strategies to
minimize risk. You are actually better off following  algorithmic strategies in
the trading of most derivatives such as Credit Swaps,  converts, hybrid
securities and synthetic COD's than following simple "good  judgement"  which have
caused major losses in many cases such as the recent  Barton Bigg's fund debacle
when he bet against the rise of oil prices.
I  won't discuss the now overly analyzed case of LTCM, but the average
consensus is  that a was a problem not of algorithmic trading but of over extension
in  leverage. And a lack of minimal political vision of the international
scene,  which is never superseded by any quant strategy.
Now that I recall, my major  point was that this drab, dry, unhumorous area
of life does not necessitate any  especial "socializing " skills different from
hanging out at the usual after  work lap dance place, the favorite Wall
Streeter social distraction.
CS