A quant-trading firm backed by hedge-fund investor
Steven A. Cohen
and venture-capital firm Andreessen Horowitz has run into early problems.
Quantopian gained attention by creating a network of 160,000 users who developed more than 600,000 trading algorithms, grabbing the early lead in an emerging area of do-it-yourself quant trading.
But in the four months since it began trading on June 1, Quantopian’s traders have lost about 3%, according to people close to the matter. The S&P 500 rose 6.6% in that period. Given that Quantopian has earned little revenue, it likely will need to raise more cash from investors, something executives hadn’t expected, the people say.
About two months ago, Quantopian’s chief investment officer, industry veteran
left the firm, the people say.
“While we are disappointed with the initial performance we have conviction in our investment process and actively making refinements,” said
Quantopian’s chief executive officer. “It’s not unexpected…we’re investing in the internal infrastructure of the company.”
Quantopian was launched in 2011 but gained attention over the past year amid a rush by firms into quantitative investing, or trading based on computer models and algorithms. Quantopian’s position was helped in part by an investment of as much as $250 million from the venture capital arm of Mr. Cohen’s firm, Point72 Asset Management LP, along with backing from Andreessen. The support lent credibility to Quantopian’s goal of enabling individuals from 190 countries to come up with market-beating mathematical models in their spare time.
Still, Quantopian manages about $50 million in a hedge fund, a tiny amount in that world and well below the $250 million executives anticipated at the end of this year, according to the people familiar. The firm manages some money in a separately managed account for Mr. Cohen’s firm.
Quantopian is a young firm and could yet turn its fortunes around. But the challenges so far suggest that recruiting and training mechanical engineers, nuclear scientists and other amateurs around the globe to be quantitative traders may be more difficult that some had expected. While some of Quantopian’s traders generated profits, many of these algorithms had limits to how much money could be invested with them, the people said.
Other firms are creating networks of individuals around the globe to develop crowd-sourced algorithms to trade stocks, such as San Francisco-based Numerai, which pays its employees with a digital currency it created. It’s too early to assess the track record of these firms.
Quantopian’s community of algorithm authors, which like many quants face a problem of dealing with too much data, will be given new tools to “clean” their data, or cleanse it for inaccuracies, the company said. Quantopian may be able to sell these data-cleaning capabilities to the growing number of investment firms adopting quantitative strategies, the company said.
Late on Tuesday, the Boston-based firm sent an email to its community of algorithm authors informing them of Mr. Larkin’s departure and saying “the fund is being managed on an interim basis by other members of the investment team…the journey to creating something great is never easy.”
A spokesman for Mr. Cohen wouldn’t comment.
Write to Gregory Zuckerman at email@example.com
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Appeared in the November 8, 2017, print edition as ‘Do-It-Yourself Quant Upstart Hits a Snag.’
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