Hedge fund and other financial professionals who toil away on highly complex and sophisticated financial models have their “Academy Awards” too. Recently, The CME Group, which bills itself as the world’s largest and most diverse derivatives marketplace, and the Mathematical Sciences Research Institute (MSRI), awarded their fourth annual grand prize for innovation.
The award recognizes individuals or groups who contribute original concepts and innovation in the use of mathematical, statistical or computational methods for the study of the behavior of markets and, more broadly, of economics. This year’s recipient was Dr. Sanford Grossman, Chairman and CEO, QFS Asset Management, according to a Reuters news release.
Dr. Grossman’s research has spanned a broad spectrum of economics and quantitative finance, notably in the analysis of information in securities markets, corporate structure, property rights and optimal dynamic risk management. He has published widely in leading journals and received the 1993 Mathematical Finance Best Paper Award for “Optimal Investment Strategies for Controlling Drawdowns.”
“Quantitative research continues to play a vital role in the spectacular success of hedge funds like those offered by my firm, QFS,” said Dr. Grossman, in accepting the award.
The financial meltdown sank some of the most storied names in banking and brought the world financial system to the brink. But John Paulson earned nearly $6 billion betting against the mortgage market and banks, and earned himself a place as one of the savviest hedge fund managers in history.
Motley Fool profiles Paulson in their section on financial giants, tracing his roots from growing up in Queens, New York, to Harvard Business School, where he earned an MBA as a Baker Scholar, the school’s highest academic honor.
Ironically, Paulson worked as an investment banker at Bear Stearns for several years before getting a hedge fund job at Gruss Partners, and then setting up his own hedge fund in 1994 with just $2 million of his own money.
According to the Motley Food profile, Paulson built up a winning track record in merger arbitrage, taking advantage of price differences that arise when mergers and acquisitions are announced. He attracted more investors and built his team.
Paulson’s big breakthrough came in 2005 when he felt that housing prices had appreciated too much and the market bubble was due for a crash. He began shorting mortgage-backed securities (MBS), focusing on triple-B bonds, which are the lowest tranches in subprime securitization. Paulson correctly calculated that a decline of just 6 percent would wipe out these securities. In hindsight, it seems like a reasonable bet, but at the time, big banks (including the aforementioned Bear Stearns), were loading up on these instruments.
As a result of the crash, Paulson earned the biggest pay day in Wall Street history, $3.7 billion in 2007. He kept up his shorting strategy through 2008, earning another $2 billion.
You can read the full profile, including what Paulson is shorting today, at Motley Fool.
Hedge fund firms concentrated in Connecticut’s southwest corner are beginning to hire again, as both the economy and markets recover. A report by Connecticut Post online quotes Sandy Gross, managing partner of Pinetum Partners LLC, as saying “the worst is over” and that job growth picked up in the past month.
Pinetum Partners, based in Greenwich, is an executive search firm that specializes in senior level staff for hedge funds, investment banks and other financial firms.
Positive earnings by JP Morgan and Morgan Stanley and a general upswing in the markets have fueled investor confidence. Firms are hiring cautiously, led by the larger firms that have more capital under management.
The article states that there were as many as 4,000 people employed by hedge funds in Fairfield County, Connecticut, last year. No one is sure what the number is now. The total number of hedge funds in the New York City region has declined from 10,593 funds to 9,153 funds, according to data provided by Hedgefund.net.
Sandy Gross from Pinetum was also quoted as saying that hedge fund job hiring activity, particularly by large funds, has focused on trading, analysis and management, especially in the high-frequency trading, global macro and distressed debt arenas.
