Winton’s David Harding Offers Insights on Quant Investing

In an interview with Bloomberg earlier this year, Winton Capital Management founder and quantitative investing pioneer David Harding offered insights on the challenges faced by today’s quants, the competitive environment and the search for new strategies.

Here are some highlights:

  • Systematic strategies have become crowded according to Harding: “With low to zero interest rates, its tough to make money in the hedge fund game at the moment.” However, he added, “that’s what leads to innovation. Anyone that’s complacent is waiting to have their head handed to them.”
  • The hedge fund industry, says Harding, is “evolving like every other industry. Fees have been coming down and firms are being pushed to the wall” and driven towards consolidation.
  • Harding explains the steps that Winton is taking to innovate: “We’ve always hired and trained a lot of scientists and maintained sophisticated computing networks.” In recent years, he added, Winton has begun using cloud-based computing, which has allowed the firm to “do a lot of things we weren’t able to do before,” including increasing portfolio sizes from 1000-1,500 stocks to upwards of 7,000 stocks.
  • When asked whether all systematic strategies will become too crowded to be effective in the future, Harding responded, “I don’t think so….I see a better model as a jungle where creatures emerge and thrive and eat each other and life moves on and the whole system evolves.”
  • While he believes the market is not offering as many mispricings as it once did, Harding says there are bright prospects in the future for quant firms. “Markets aren’t suddenly going to become efficient,” he said, “and suddenly all quantitative strategies are going to disappear. It’s going to be a battle with ever-rising stakes.” The industry, he added, is “fiercely and relentlessly competitive.”
  • Harding emphasizes that while all the firm’s strategies are systematic, they are all “governed by people. We write a program and we run the program. We don’t put hoods over our heads and sit in the dark while the program runs.”
  • Artificial intelligence (AI), says Harding, is “one-part reality and nine parts hype.” Generalized human intelligence, he argues, is “not something computers are going to master anytime soon.”
  • Harding is not surprised by the level of market volatility we’ve seen in the past couple of years. “Stock markets go up and down a lot,” he says. “It’s one of the things that they do. The idea that the markets are getting more volatile is a silly idea, really.”
  • Although Harding says he is “one hundred percent confident” that his firm will be able to discover something totally new, it remains to be seen if that will translate into huge returns: “When Mark Zuckerberg was writing his program in his dorm room,” he says, “the fact that the program might be worth a trillion dollars was too surreal. The future is undetermined. Anything is possible.”
  • “Applying math to investment markets through modern technology is very much a business of today and its not about to be arbitraged into non-existence,” Harding contends, adding that asset managers are going to have to prove that they’re adding value more than before. “In the old days,” he explains, “managing money was all about relationships. Now, there are a lot of data and statistics and a lot of people are evaluating the performance of investment managers.”