When quants go rogue: the case for becoming a hired gun

Investment banks and hedge funds are actively fighting over quants, throwing salaries of well over six-figures at even entry-level engineers and data scientists that can build revenue-generating algorithmic trading strategies. Meanwhile, the demand for quants is only expected to increase as old-school traders continue to be shuffled out. So why would a quant voluntarily remove themselves from what appears to be an ideal job market? Some argue that the talented ones have the opportunity and leverage to do even better on their own.

“Every quant thinks they are worth more than they’re paid, and every hedge fund undervalues them” said Jared Broad, founder and CEO of QuantConnect, an open-source algorithmic trading platform. Broad’s answer to this potential disconnect was to try to create a quant meritocracy of sorts: an open marketplace of trading algorithms where hedge funds can shop and buy what they like. The better the algorithm, the more quants will get paid.

Broad said that QuantConnect currently has around 65k users back testing and building quantitative trading strategies on its platform – across equities, futures, options, cryptocurrencies, CFDs and FX markets. After a user-generated algorithm is greenlit by the team, it is then loaded into QuantConnect’s database and priced accordingly by the quant who developed it. Hedge funds will search for algorithms that fit their specific criteria and license them for a monthly fee of anywhere from $100 to $30k, of which quants earn 70%. The average fee is currently around $1k, according to Broad, who said that more than 100 hedge funds use QuantConnect’s LEAN platform for their algorithmic trading.

Currently, only around 5% of users consider their work with QuantConnect to be full-time, according to Broad. Rather, many algo traders use it to supplement their own hedge fund startups. One used QuantConnect’s platform to launch a fund out of his mom’s basement in New Jersey. “They don’t need to buy the technology and can use fees earned as a proxy for managed capital,” Broad said. Others simply utilize the open-source platform to create algorithms for their own strategies.

Broad hopes the system will eventually allow quants to make more money than they would at a hedge fund as the marketplace matures and algorithms develop longer track records. The firm is also on the precipice of evolving its pricing away from a subscription service toward an eBay-like bidding model where the algorithm goes to the fund that makes the highest offer, above a minimum threshold. Broad believes a bidding system will push up the price of the average licensing fee. “Quants also want to be decentralized; they don’t want to sign these massive legal agreements that lock up their IP for five years,” he said. He's not the only one pushing this idea:  Quantopian, Numerai, and Quantiacs are all doing something similar.

However, Broad feels the marketplace is also beneficial to hedge funds, which won’t have to screen, hire and onboard as many quants. He estimates that it costs around $500k to get a quant fully ramped up.

It will obviously take time to see if a marketplace concept can lure the best quants to leave their cushy hedge fund jobs to become a hired gun. That’s a lofty goal. But at worst, the system may provide an avenue for hopeful quants who were turned away by hedge funds for whatever reason. Just tell mom to get the basement ready.

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