Top Hedge Fund Uses Algos to Drive Performance

Pete Muller, who runs PDT Partners, is described by Forbes as “the latest, greatest member of a growing band of hedge fund [managers] that use complex math and computer-automated algorithmic models to buy and sell stocks, futures and currencies based on statistical correlations and aberrations that can be found in the market.” Muller, who worked with Mogan Stanely for years before taking a hiatus in 1999 and eventually starting his own venture, has a strong record of returns. His largest fund was up 21.5% net of fees over the first 11 months of 2015 – given particularly high fees, this translates into approximately 40% gross returns. Annualized net returns since the fund began in 2013 are 18.5%. Muller says, “Quantitative investing is the best way to manage money, period.” His firm has 35 researchers constantly working on closely guarded secret models, some of which take years to develop. Forbes reports: “Ferreting out small market inefficiencies is core to PDT’s strategy, and what is clear is that, for Muller, the more trading going on in the markets the better.” Muller trusts in the computer activities driven by his models, rarely intervening manually even when market upheavals contravene his predictions. The models are continually improving. Muller says, “It will get harder, but we are prepared, and as information becomes more widely available and computing power increases, the strength of our models will improve.”