It seems that name-melding has extended beyond the ranks of celebrities (think Brangelina and TomKat) to the world of fund management. An article in this month’s Pensions & Investments explains how, in the face of disappointing performance, hedge fund managers are integrating quantitative strategies into their fundamental approaches in an effort to improve results.
Lin William Cong, finance professor at the University of Chicago’s Booth School of Business (and self-proclaimed inventor of the term “quantimental”) says market data is showing an “increasing use of quantitative tools” (that incorporate complex risk factors such as value, momentum and volatility) into the management of funds that have been primarily fundamentally driven (focused on more traditional metrics related to earnings, profitability, debt levels and market capitalization).
BlackRock Inc. (which oversees a whopping $4.89 trillion) recently reported to employees a plan to combine its $200 million active fundamental equity strategy business with its $80 billion quantitative active equity unit.
However, hedge fund managers who have been using quant strategies all along are a bit skeptical about the move toward hybrid management. One anonymous source at a pure quant shop argued, “quantitative investment requires consistent application of analysis, models and never-ending innovation. You can’t apply quant measures on a part-time basis.”
Sonia De Zordo, managing director of quantitative research at Chicago-based Mesirow Advanced Strategies Inc., says the blending of the two strategies has “not been particularly smooth,” but argues that managers “really need to do a little bit of everything. With markets less rewarding and more efficient, you need all the tools you can get to find alpha.”