The third point about quantitative investing is there is much reduced ‘key-man risk’.
It is not the star managers, but the algorithms that make the investment decisions. So even if the investment manager is no longer available, the algorithm is still there, which is usually the intellectual property of the company.
Last but not least, it is low cost. Most of the overheads are towards the infrastructure: data sources, fast connectivity, and computational power. Once you have that, all that is needed is a few clever people to design the algorithms. It is quite typical to see hedge funds handling assets under management in the order of £1.5-3.5bn with no more than 10 people designing the algorithms.
Quantitative investing is well known in the US retail investment sector, where discretionary fund managers have been using quantitative strategies to manage billions of dollars of clients’ money. So expect an increased uptake of quantitative investing in the UK in the near future.
Dr Evrin Erdem is head of investment at Copia Capital Management, the DFM arm of Novia Financial
