Are fundamental equity analysts doomed to be replaced by machines?
That's the implication of a recent Reuters story by Dane Hamilton. The sources quoted are mainly quantitative investment experts from the hedge fund community, but also include Brad Hintz, an influential financial services analyst at AllianceBernstein who was once Lehman Brothers' CFO.
"At an increasing number of Wall Street investment banks, hedge funds and elsewhere, computers are churning out investment analyses culled from enormous pools of data," Reuters says.
Tanya Beder, a quant executive and trader with a lengthy Wall Street pedigree, told the news service that buy and sell signals generated by computer models are more objective and more "pure" than human analysis. She estimates that model-driven trades currently account for a third of all stock market activity.
Sandy Gross, who runs the hedge fund recruiting firm Pinetum Partners, noted "there's great demand for ... rocket scientists," with or without any background in finance.
The story broadens the message delivered in late May by James Simons, founder and president of Renaissance Technologies Corp., in a rare public speech to a financial engineers' group. "We haven't hired out of Wall Street at all," Simons said, according to a news account by Hamilton. Instead, the top-performing, model-driven hedge fund hires "physicists, mathematicians, astronomers and computer scientists and they typically know nothing about finance," in Simons' words.
A former math professor at MIT and Harvard, Simons made headlines in April when Institutional Investor's Alpha magazine named him the highest paid fund manager of 2006, at $1.7 billion.