Hedge funds with quantitative strategies are pulling in more
than their weight.
Systematic strategies have taken almost twice their
fair share of hedge fund allocations since 2010,
according to a Barclays prime services report this month. Quant
funds attracted $114 billion, or 29 percent of total inflows
over the last seven years, despite accounting for only 17
percent of hedge fund assets under management.
Thats the largest slice of the industry such funds have represented in
the past decade, with about $500 billion of assets last year.
Quant managers will probably continue to benefit from a decline
in algo aversion as investors increasingly accept
systematic strategies, according to the report.
Investors are overwhelmingly in favor of growing their
systematic allocations in the short term, Barclays said
in the report. Recent inflows have tended to favor
systematic managers particularly equity quant.
The firm expects that 54 percent of investors to embrace
equity quant strategies this year, up from 48 percent last
year. Thirty-six percent of investors had algorithm-free
portfolios in 2016, the firm said, estimating the proportion
without allocations to systematic strategies would decline to
30 percent this year.
While quant funds are becoming more popular, Barclays said
their performance has not been much better than the whole hedge
fund industry. The firm found very little to
differentiate equity quant funds that are market neutral
from discretionary hedge funds, though systematic funds tended
to outperform their discretionary peers during equity market
corrections. They also offer lower correlation to other equity
and hedge fund strategies.
Barclays said that more than half of the systematic managers
it studied were investing in new tools like big data and
machine learning in an effort to improve their investment
processes. Although these techniques come with their own
challenges including the cost of acquiring data and
assessing which data sets are actually useful the
meaningful level of capital that managers are starting to
deploy toward such initiatives ... offers a clear indication of
the importance that managers are attributing to new data
sources and the pivotal role they will play in the
Even more traditional hedge fund managers are increasingly
adopting quantitative techniques, Barclays added, resulting in
a surge in what they termed quantamental
While systematic hedge fund strategies continue to
remain a minority of the overall hedge fund industry assets
under management, there are numerous signs to indicate that
they may be in for sustained growth in the short and long
term, Barclays said in the report.