If you were hoping to make a large amount of money working for a quant hedge fund in the style of - say - Jim Simons, then we have some bad news for you. Quant hedge fund managers are having to share their winnings - not with other humans, but with data.
The newly released accounts for Qube Research and Technologies, the quant hedge fund that spun out of Credit Suisse in 2017, underscore the trend. In 2017, Qube had 87 employees and paid them an average of £323k ($397k). One year later, it had 92 employees and paid them an average of £257k, a fall of 21%. Over the same period, Qube's spending on data and technology rose 30%, from £19m to £25m.
Qube declined to comment on the figures. 2018 also corresponded with a nearly 45% decline in performance fees at the fund, suggesting falling pay was also performance related. Anecdotally, however, rising data costs are becoming a big issue across the industry.
"Data has become a huge cost for us," says the COO of a rival quant fund. "Much more so than in the past. - Exchanges, for example, now understand that they have a valuable commodity in their data and data costs are rising above the rate of inflation."
Many funds don't split out spending on technology and data. Two Sigma International, for example, simply groups everything under 'administrative expenses' (which rose 12% last year). However, Two Sigma International does breakdown its employees by category. In 2018 engineers were 70% of its 42 employees, up from 59% the previous year. Technology employees are always going to be critical in technology-driven funds, but that criticality is clearly increasing.
"When you want to grow as a fund now, you need to invest in data and you need to invest in the platform," says the COO. "Both those things come out of the bottom line, and the bottom line is what dictates pay."
As data costs rise, hedge funds are turning to 'data buyers' to seek out the best deals. Earlier this year, Deloitte estimated that the market for alt-data was worth $7bn, and even in 2016 litigation over a non-compete between WorldQuant and Third Point revealed that a data buyer was being paid $2m. Suddenly, algo-writers aren't top of the tree.
"We now have someone responsible for the collation of data," confirms the COO. "It's making us more efficient in how our platform consumes it."
Have a confidential story, tip, or comment you’d like to share? Contact: email@example.com in the first instance. Whatsapp/Signal/Telegram also available.
Bear with us if you leave a comment at the bottom of this article: all our comments are moderated by human beings. Sometimes these humans might be asleep, or away from their desks, so it may take a while for your comment to appear. Eventually it will – unless it’s offensive or libelous (in which case it won’t.)