Fundamental hedge fund managers are, in growing numbers, being won-over to the concepts of artificial intelligence, machine learning and big data. How much of this is genuine interest as opposed to the fear of missing out is unclear.

What Is Clear

Data science, artificial intelligence, and machine learning have attracted significant attention in recent years, and, propelled by the success of quantitative funds such as Renaissance Technologies LLC and Two Sigma, fundamental managers are increasingly expressing interest in blending these techniques into their fundamental investing strategies. This approach has been dubbed “quantamental” and is practiced by firms from Blackrock to Point 72.

Of course, optimizing data is inherently complex and the accuracy of the predictions derived from this data is directly proportional to the quantity of data available for analysis. Therefore, reliable pipelines of information are paramount to success. Understandably, fundamental managers are struggling to determine cost-effective implementation solutions. This means deciding whether to build out an in-house system or acquire one of many existing software platforms. As a practical matter, the largest funds will have more options than smaller funds in this regard.

The “Ownit”

Currently, the “ownit” is a theoretical investment vehicle proposed in a survey conducted by Citi’s Business Advisory Services and Citi Services entitled Industry Revolution – Investment Management in 2033.

Essentially, the ownit would be a registered investment token, incorporating financial, ownership usage rights, creating new forms of liquid ownership units, hence the moniker, ownits.

The ownit concept is born of block chain technology, which offers the ultimate in transparency. More to the point, it would function seamlessly with primary issuance and secondary trading systems and provide a mechanism to build diversified portfolios in equities, bonds, wine, art, and a variety of other alternative assets…or combinations thereof.

The survey also suggests the concept of the “corpit,” which is an extension of the ownit, but to the corporate world. Corpits are defined as corporate exposure units. Operating in much the same vein as ownits, the corpit offers enhanced opportunities for the corporate world to pursue its unique objectives.

These are exciting concepts about which more can be read here. Of course, the survey itself, Industry Revolution – Investment Management in 2033, addresses the subject in the greatest detail.

What about Hedge Fund Jobs?

These are transformative times in the hedge fund industry. Continued success requires that hedge funds not only embrace new technology, but also understand the potential this new technology offers. Those seeking employment in this industry must understand the lexicon. This is the first step. The second step is to use this understanding to enhance the innovation of new investment products and services, while providing investors with the best opportunities to grow their wealth.

Hedge funds have traditionally been at the forefront of innovation. Data engineering, cloud technology, data science, blockchain technology, and investment research augmented by artificial intelligence and machine learning are the future of the hedge fund industry. Those who prepare their minds and hone their skills in these disciplines have extraordinary job prospects in the hedge fund industry.

 

 

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Practically speaking, 2018’s first quarter hedge fund results are in the rear view mirror, and two trends are becoming clear.

First of all, HFRX Global Hedge Fund Index reported modest gains of 19 basis points through mid-March, which does not comprehend the latter half of March’s sharp drops in the Dow Jones Industrial Average. Moreover, the S&P 500 fell 1.2 percent by month-end, signaling the first quarterly loss in the index since 2015. Volatility has returned to the markets—with a vengeance!

The quarter was marked by market chaos as U.S. stocks plummeted, led by a previously generous tech sector, that saw Tesla tumble 5.1 percent due to production shortfalls and investor concerns regarding its autopilot technology. Amazon also took a hit after raising the ire of President Trump, who accused the company of taking unfair advantage of the U. S. Postal Service and paying nothing in the way of taxes. Then, to ice the cake, President Trump fully embraced the concept of a global trade war. In short, the trend for volatility through 2018 has been clearly established.

Secondly

Investors of all stripes are clearly nervous, as evidenced by the significant drop in ETF investment, coupled with a spike in first quarter trading volumes. Exchanges experienced a 10 percent year-over-year volume increase in March alone. Inflation fears are also a contributing factor, exacerbated by the recent rate hike promulgated by the FOMC.

What about Hedge Fund Jobs?

As dire as all the foregoing may sound, current events actually make hedge funds the most logical investment alternative for skittish investors. Hedge funds, especially those practicing long/short equity strategies, operate at a distinct disadvantage in stable markets. The so-called market chaos of 2018’s first quarter should be an environment in which such strategies thrive. Of course, they have not thrived, but that is because they have yet to make the necessary course corrections that volatility requires.

As 2018 matures, if necessary adjustments are made, hedge fund performance will reflect these changes by returning positive gains for investors. We have already seen hedge fund starts outpace hedge fund closures throughout the first quarter, suggesting investor demand.

Naturally, any net increase in the number of hedge fund firms will create job opportunities for aspiring hedge fund professionals.

Final Thoughts

Final performance figures are just a few days hence, but the HFRX strongly suggests that March will not be a banner month for hedge fund performance. That said, investors must come to the logical conclusion that the days of investing in an index fund with every confidence that gains will follow, are behind them. The return of market volatility has the potential to usher in a new era of hedge fund out performance. Hedge funds capable of making the appropriate adjustment to volatility, in concert with an intelligent marketing outreach, will reap the rewards.

The innovative culture that personifies the hedge fund industry is certain to rise to the occasion and hedge fund job opportunities will rise proportionately.

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Does an MBA Provide a Fast Track to a Hedge Fund Job?

March 19, 2018

Let’s begin by saying that no one should be discouraged from pursuing an MBA. However, it is important that one is clear on the motive for doing so. If the motive is to fast track employment with a hedge fund, one might be in for disappointment. Some Harsh Facts According to the 2018 Hedge Fund […]

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Disappointing February Returns Do Not Stall Job Opportunities

March 5, 2018

February appears to mark the end of 14 consecutive months of positive gains for the hedge fund industry, with HFRX weighted average returns posting a decline (- 0.35 percent) as the surge in market volatility worked its worst in hedge funds. While the HFRX is much narrower in its scope than the HFRI, which comprises […]

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What Do You Think About the S&P 500 as a Benchmark Now?

February 19, 2018

The January 2018 results for aggregate hedge fund performance have been published. According to HFR, the industry showed a 2.8 percent gain. In contrast, the S&P 500 gained 5.7 percent in January before plummeting in the wake of February’s correction. Year-to-date gains for the S&P 500 as of February 16 stood at 2.19 percent, 61 […]

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The Patriots and the Markets Suffer a Devastating Loss

February 5, 2018

The hedge fund industry is off to a stellar start in 2018, as HFR reports. Average hedge fund gains of 2.45 percent, a January monthly performance record unmatched since 2006, were achieved. While this is, unquestionably, an auspicious beginning, we must remember that past performance is no guarantor of future success. What Happened Next? Post […]

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How Happy Will You Be in Your Hedge Fund Job?

January 22, 2018

One sees the adjective happy, in daily use, in many contexts. It may characterize a feeling, causing a sense of satisfaction, a willingness to perform a task, an unexpected pleasure, a greeting, and even a description of slight intoxication. The connotation most appropriate to describing one’s job in the hedge fund industry encompasses all these, […]

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