Galleon's $60 Million HFT/Stat Arb Operation
While certainly no Medallion (in anything but iambic pentameter), it appears that recently notorious and soon defunct hedge fund Galleon has been dabbling, among other things, in statistical arbitrage. One wonders if Moody's has been instrumental in providing the firm with any good VWAP "hot tips." Oddly, the firm's stat arb fund has performed an impressive 18% YTD, and had recorded just one down month in the past year. Perhaps the Feds should take a quick look at this particular strategy and discover how it has generated 64% since inception on a Jim Simons drool-inducing 0.96 sharpe, especially with such broad M/N indices as the HSKAX and HFRXEMN about to wiped out with impunity due to constituent underperformance.
A full description of the rocket science behind this holy grail of Profit generation is provided straight from the horse's mouth:
The Galleon Quantitative Statistical Arbitrage Fund (“GQSA”) returned +2.29% net for the month, bringing the year to date return to +18.10% net. The Galleon investment strategy, which integrates mean reversion and momentum price based models in a global portfolio, was profitable in each geographic region. In recent months, the multi-factor approach to price based trading has yielded the strongest returns in the European and Asian portfolios; in September the equity markets continued to exhibit good momentum and mean reversion opportunities throughout many markets. However, the multiple proprietary filters used to control leverage of the individual trading models remained cautious for most of the month. The gross exposure largely stayed low, approximately 180% (90 cents per side). Net exposure was approximately +7% and VaR averaged 55bps. In terms of sector attribution, the GQSA Fund was profitable in every sector in aggregate, with Industrials, Consumer Discretionary and Financials being the most profitable sectors across the global portfolio.