Hedge Funds Research: Quant Strategies on the Rise as Post Pandemic Optimism Grows

New research with 100 leading hedge fund managers reveals widespread enthusiasm for quant strategies.

• 80% of hedge fund managers expect institutional investors to increase their allocation to quant strategies in the next twelve months

• 73% of managers believe the current economic and fiscal environment is attractive for quant strategies

• 86% expect the number of quant hedge funds to increase over the next five years

Quant Hedge Fund

Hedge fund managers are very optimistic about their future prospects and see quantitative strategies as a clear area for growth, according to recently commissioned independent research with 100 global hedge fund managers.

Collectively, the hedge fund managers surveyed manage over $231 billion in AUM across European, Asian and North American markets, and provide telling insights into the market trends and dynamics of the hedge fund industry.

Growing Allocation To Quant Hedge Fund Strategies

The findings reveal that 80% of hedge fund managers expect institutional investors to increase their allocation to quant strategies in 2021, with 29% expecting this increase to be significant.

When asked which quant strategies and asset classes are likely to see the biggest increase in inflows over the next 12 months, the hedge fund managers interviewed predicted FX and equities will see the largest rise, followed by rates, volatility and commodities strategies.

Macro Environment Drives Opportunities For Quant Strategies

A key reason for optimism in the sector is that 78% of managers surveyed believe that
quantitative strategies should perform better in 2021 than they did in 2020 and 73% believe the current economic and fiscal environment is attractive for quant strategies. Some 68% say they expect quant strategies to outperform this year, and nearly six out of ten (59%) believe many are becoming more attractive because they offer diversification benefits for portfolios. Growing levels of sophistication and innovation in the sector are fueling this trend.

With asset owners set to increase their allocation to quant strategies, the research found 86% of those surveyed expect the number of quant fund managers to increase over the next five years, with 28% predicting a dramatic rise.

Increased Transparency

As the hedge fund industry continues to grow, levels of transparency in the quant market are expected to increase. 75% of hedge fund managers think increased transparency will lead to institutional investors increasing their allocation over the long term.

Quant Tech

When questioned about what mattered most to them in trading infrastructure, 65% of hedge funds surveyed said backtesting (providing consistent results between live trading and backtests by factoring in real-life trading costs and market structures) was ‘very important’. 52% said clean data was also very important to them. The ability to move seamlessly from research into production and execution (49%) and getting trading strategies to market faster (47%) were also cited as significant features.

Social Media And Crypto Assets

New and innovative datasets were also found to have supported the growth in systematic strategies: 24% of hedge fund managers questioned have dramatically increased their analysis of social media and chatroom data over the past 12 months. A further 48% said it has increased, and only 12% said they have focused on this set of market data less.

Furthermore, over the next two years, 30% say they will dramatically increase their use of chat room and social media data to support signal construction and wider investment decisions. A further one in three (35%) believe their usage of this data will rise slightly.

Over the next two years, over 80% of respondents expect an increase in the use of cryptocurrencies in quant strategies and portfolio management, including 36% who foresee a dramatic increase. 45% predict a slight rise.

Capitalising On Data And Technology

2021 is proving to be a strong year for hedge funds in terms of performance and the sector is on track for sustained growth [2]. Exposure to new or previously under-utilised datasets and methods in social media, crypto, and even more recently, nowcasting, are further fueling innovation in the industry.

When launching new systematic investment processes, infrastructure build-out and data management can be slow and expensive, while strategy development and back-testing can be cumbersome and repetitive. Fund managers are increasingly looking for new ways to reduce inefficiencies and create operational leverage via SaaS solutions and ‘plug and play’ technologies to ensure that their funds can improve their pace, scale and innovation when launching new strategies.