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Morning Coffee: Who’s the King of the Quants? (Not at all who you think) And the worst sectors to be working in so far in 2019.

He’s left the hedge fund superstars in third place.

John Overdeck, the co-founder of Two Sigma Investments is, as you’d expect for the person managing $60bn dollars of quant money, the kind of person who does math exams for fun.  He’s a former silver medallist in the International Mathematical Olympiad and the chairman of the National Museum of Mathematics.  So when the NMoM had its annual fundraising “Masters Tournament”, which aims “to turn math into a spectator sport”, he should be in with a good chance of winning.

And indeed, he has won it twice in the past.  But not this year!  He was beaten by Geva Patz. Patz is not the head of a well known quant fund but an “independent researcher” who spent most of his career also working as a fireworks specialist and was most recently in the news as part of a team which invented a robot that could make flawless basketball free throws.  In a world in which the word “robot” is increasingly being used to mean “piece of middle office productivity software”, it’s good to see that while hedge funds can boast some world champion nerds, there are still some old-school eccentric geniuses out there flying the flag.

Second place went to Sandy Klein of the Institute for Defense Analysis Center for Communications, a name which manages to combine “uninformative” with “slightly sinister sounding”, but almost certainly isn’t a hedge fund, and third place was Overdeck.  We particularly admire, however, Madalina Persu, a 29 year old quant at Two Sigma, who managed to achieve the modern equivalent of losing to your boss by two strokes at golf; she came in just behind Overdeck.  Ms Persu claims to have “focused on the problems”, but we like to think there was a risk management problem to be solved here, and she optimised for it.

Mathematics contests, as Overdeck freely admits, bear the same kind of relation to real mathematics as whiteboard tests bear to real quant trading.  He told the assembled reporters that his own comparative advantage was “quick” rather than “deep” and that the only “true” mathematician in the hedge fund world is Jim Simons of Rennaissance Technologies. If you fancy yourself in the same category, you'll need to answer questions like: 'If a 2-inch cube of silver weighs 3 pounds and is worth $200, how much is a 3-inch cube worth?'

Geva Patz has presumably been made one or two offers to join a big name quant team in his time. His LinkedIn profile suggests he’s run his own fund in the past, but he’s not in finance at all at the moment and who can blame him?  According to Barclays’ head of statistical modelling and development, Daniel Nehren, the Holy Grail in terms of algorithmic trading at the moment is an algo that will let you change your strategy half way through the execution of an order (JP Morgan seem to think the same thing).  Although this is surely a useful task, if the world allows you to earn a living designing pyrotechnics and making a basketball robot, the attraction of banking is always going to look a bit paler.

Elsewhere, the world of equity capital markets banking is always in feast or famine, but the current drought is extraordinary.  The volume of IPOs and secondary offerings worldwide for the year to date is 60% down on the first two months of 2018, and is currently tracking to be a worse start to the year than even the crisis year of 2009.

Political risk seems to have been at the root of it.  During the U.S. government shutdown, the SEC wasn’t able to approve prospectuses, and the resulting backlog has meant a deal period in the USA.  With Brexit on the horizon, the UK market has also been taking a bit of a break, and Europe and Asia have not been particularly enthusiastic to pick up the slack.  The performance of the few deals that have come to market has been decidedly mixed and the one mega-deal that could have saved the quarter for its underwriters – the spin-off of GE’s healthcare businesses – has so far not landed.  ECM bankers are generally born optimists (they have to be), and presumably still regard this as a sign of a healthy pipeline and a bumper quarter later in the year, but unless some activity returns, the smiles are going to start wearing a bit thin.


Santander weren’t prepared to pay up for Andrea Orcel, but they were pretty generous to Nathan Bostock, the CEO of their UK operations.  He was awarded £4.6m for the last year, making him Britain’s best paid bank chief. (Yahoo)

Everyone in the industry knew it, but now Coalition’s data shows the extent to which MiFID2 has been a disaster for equity research; 200 of the 300 jobs cut in the top 12 banks’ equity operations were for research analysts last year, roughly a 5% reduction in the workforce, which now numbers 4,000 (Financial News)

A sad story from Manhattan – JP Morgan have been ruled not responsible for the death of an MD who took his own life after being made redundant in 2016.  The court decided that although Michael Lorig had taken disability leave with depression, the bank could not have foreseen that its decision would lead to his death. (Reuters)

Lucy Baldwin, a high-flyer who had previously been made one of Goldman Sachs’ youngest directors, has left Bank of America, where she had worked on the Equities management team since 2015. (Business Insider)

Donald Trump’s former lawyer Michael Cohen has claimed that in 2014 when attempting to raise finance for a deal, Trump exaggerated the value of his assets on a loan application to Deutsche Bank. (New York Times)

Yesterday’s JP Morgan investor day has not gone down well with analysts, with estimate cuts and a growing air of pessimism (Bloomberg)

“Crowded trades” are at an all time high in the hedge fund world, with the top ten positions accounting for an unprecedented 70% of fund value (Bloomberg)

And does anyone remember an unusually energetic and aggressive young colleague with Pakistani heritage and a Yorkshire accent?  Bilal Ansari, currently competing as a professional wrestler under the name “Amir Jordan”, says in this interview that he gave up a job in investment banking, but he doesn’t say which bank. (BBC)

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AUTHORDaniel Davies Insider Comment
  • Ja
    James Webster
    3 March 2019

    'If a 2-inch cube of silver weighs 3 pounds and is worth $200, how much is a 3-inch cube worth?'

    Forgive me, is the answer not as simple as this:

    ratio of side length big to small = 1.5

    1.5^3 = 3.375

    3.375 * 200 = 675

    Surely I've oversimplified things - if not how did so many 'quants' get knocked out by that question?

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