Hedge funds have been giving vast sums to academia this last
year. In February Ken Griffin, founder of Chicagobased
hedge fund firm Citadel, donated $150 million to Harvard
College, the biggest single gift to the college ever. Michael
Hintze, head of Londonheadquartered hedge fund firm CQS, donated £1.5 million ($2.5
million) to Oxford University, to help search the universe for
invisible dark matter and dark energy. These followed
Jerseybased hedge fund firm Brevan Howards £20.1 million
donation to Imperial College Business School last year and the
£4.5m to Oxford Universitys Saïd Business
School from Bill Ackman, the activist investor CEO of New York
hedge fund firm Pershing Square Capital Management.
University coffers seem to be awash with hedge fund money.
But more recently there has been a new trend to harness
academic research with investment returns.
In February Capital Fund Management (CFM), one of
Frances largest hedge fund firms, which manages $4.5
billion, announced a formal partnership with Imperial College
London to create the CFM-Imperial Institute of Quantitative
Finance, which will explore new directions in the modeling of
risks in financial markets. To promote academic inquiry into
finance, CFM is funding a postdoctoral fellowship, stipends for
doctorate-level students and a program for visiting
international scholars, as well as a series of seminars and
The project is a solid fit for CFM, the company of which
physicist Jean-Philippe Bouchaud is chair, a leading figure
among quantitative hedge fund firms. Finance is as
important for humans as nuclear science and pharmaceutical
research, says Bouchaud. Academia and finance are
two separate things. But the gap is getting narrower; this
tie-up is proof of that. Its time to stop warring and get
the best of both insights.
As well as overseeing CFM, Bouchaud teaches physics at the
Ecole Polytechnique in Paris and has published several books
and more than 250 scientific papers on physics and finance. He
is also a well-known proponent of econophysics, the study of
economics using statistical theories and methods developed by
physicists. The firms teaching connections have helped
CFM to bring 40 scientists on staff out of its 140 employees,
many of whom have come from the ranks of higher education.
The urge to marry finance and academia is nothing new.
Economics has leaned on physics for a variety of model
equations, such as for earthquake prediction and chaos theory.
Black-Scholes-Merton option pricing formula,which won Myron
Scholes and Robert Merton the 1997 Nobel Memorial Prize in
Economic Sciences, shares its derivation with the heat equation
in physics. (The formula was first published in a 1973 paper
and was co-created by Fischer Black, who died in 1995 and was
thus ineligible for the Nobel.)