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Galleon's $60 Million HFT/Stat Arb Operation

Submitted by Tyler Durden on 10/23/2009 14:44 -0400

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.

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Fri, 10/23/2009 - 15:31 | 108504 rickets

Tyler, please show the exact location in this report that refers to the duration of their trades, or why you consider them HFT? Mean reversion, stat arb, and momentum trading do not always mean evil and/or HFT.

Your assumption that their 18% returns indicate funny/unethical trading are ignorant...but, at least they confirm your neverending "everything is a conspiracy" when it comes to anyone short term trading bias.

Again, sensationalist reporting....really revealing absolutely nothing......but thrown on your page with headlines that will likely incite riots in the comments below....

Fri, 10/23/2009 - 16:49 | 108625 mjfitz9

the conclusion is absurd based on the information presented. hrfx daily indicies are crap anyway (for your whole M/N guys are getting killed). look at the way theyre constructed on the site. hfrx distressed is down 9% this year while CCC pieces of paper are up 60+%

Fri, 10/23/2009 - 16:49 | 108626 Anonymous

That's not a high frequency fund... it's just a factor driven global stat arb fund, basically a quantitative long/short fund. and nothing outstanding about the #'s especially with only 60 M in size.

Fri, 10/23/2009 - 18:01 | 108724 Fritz

The issue here is not whether anyone in the upstanding wall street Hedge Fund industry broke a few rules or violated securities laws (they did).

But you can’t hold Wall Street responsible for its own sick, perverted behavior. For if you do, then shouldn’t we blame the whole capitalist system, including its favorite sons Ben Bernanke and Tim Geithner?

And if Benny and Timmy are guilty, then isn’t this an indictment of our entire way of life - Isn’t this an indictment of our entire American society? Well, you can piss and moan all you want, but I’m not going to sit here and listen to you bad-mouth the United States of America! Gentlemen!

Fri, 10/23/2009 - 21:24 | 109028 long-shorty

I know from personal experience that a quant fund can do at least this well without having any inside information or breaking any laws. :-)

There's nothing wrong with long-short quant funds. It's just another asset class that marches to its own drummer and has its own risks. It takes risk to make return. Lots of different risks make for a diversified portfolio.

Fri, 10/23/2009 - 21:43 | 109049 omi

HSKAX is irelevant.

Sat, 10/24/2009 - 12:18 | 109445 Anonymous

Nevertheless, this is a good piece of information wrt how some funds operate in real world.

Sat, 10/24/2009 - 13:24 | 109481 Anonymous

0.96 is a "drool-inducing" sharpe? For Jim Simons? Who the hell are you kidding? Thanks for the laugh.

Sat, 06/26/2010 - 05:18 | 435044 mbtshoe

Galleon's $60 Million HFT/Stat Arb Operation

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