New Hedge Fund “2 & 20” Model Trades Purely On Anonymously Submitted Ideas
In today’s technologically advanced world, who needs an actively managed hedge fund generating proprietary trading ideas? The hassle of hiring financial analysts and/or quant coders is just too burdensome. That’s why the 29-year old former quantitative trader, Richard Craib, has decided to run his hedge fund using algorithms sourced from anonymous programmers around the world who he never meets and pays in Bitcoin. Per the New York Times:
Numerai, created by a 29-year old former quantitative trader, Richard Craib, makes its investments based on models submitted by data scientists, who are allowed to remain anonymous and who are paid in Bitcoin based on the success of their models. The models all employ machine learning, which allows algorithms to integrate and adapt to new information over time.
Numerai is different from similar funds because its contributors remain anonymous and prove themselves through weekly “tournaments” held by the fund manager.
Contributors build their mathematical models using historical stock pricing data put together by Numerai. Their models are then tested on live trading data.
Numerai builds its own investment model by aggregating ideas from contributors and weighting them according to their success. Unlike many so-called quant funds, Numerai generally buys and hold stocks for months rather than for minutes or seconds.
Of course, as the NYT points out, the drawback to conducting business with anonymous online coders is that you could end up doing business with some “unsavory people.”
Because it pays in Bitcoin, Numerai can send money to contributors anywhere in the world without collecting personal information, though this raises the risk that Numerai ends up doing business with unsavory people.
Numerai even posts the earnings of it’s anonymous programmers on it’s homepage:
And, of course, combine Silicon Valley with Wall Street and you’re sure to attract big money from many “prominent investors.”
A hedge fund powered by ideas from anonymous contributors is attracting some prominent investors.
The San Francisco-based hedge fund Numerai is to announce on Monday $6 million in new investments from a group including Union Square Ventures, the New York-based venture capital firm led by Fred Wilson.
Union Square Ventures is joining Numerai’s previous partners, which include Peter Diamandis, a founder of Singularity University, and Howard Morgan, a founder of the unusually successful hedge fund firm Renaissance Technologies.
Meanwhile, Numerai is not the only game in town when it comes to anonymously sourced trading strategies as Steven Cohen’s new Point72 Asset Management has helped fund another competitor, Quantopian.
Perhaps the most successful of these new ventures, Quantopian, is already onto its Series C fund-raising round. Quantopian has attracted hundreds of millions of dollars from the venture capital firm Andreessen Horowitz and the new investing firm run by Steven A. Cohen, Point72 Asset Management.
With Quantopian, data scientists submit investing algorithms that asset managers around the world can license and use to trade. The algorithm’s authors get a cut of any profits. The investment ideas are not predictions of specific price patterns, but instead are mathematically based models that can be applied to different investments.
Yes, we can certainly understand why the idea of “anonymously” sourced trading ideas would be appealing Mr. Cohen.