"Kicking And Screaming" Traders Are Forced To Become Quants, CIO Claims

Yesterday we presented the sad story of one quant whose algos had stopped working as a result of massive overcrowding in a handful of trading strategies. There was a silver lining: despite having to change his strategies, he was - well - a quant. Which is great, considering that life for "old school" fundamental traders is orders of magnitude worse these days.

Consider what Sandy Rattray, CIO of London-based quant giant Man Group, said at the AI and Data Science in Trading conference Tuesday in New York, who slammed the legacy asset management industry, which he said is "kicking and screaming" as it’s forced to adapt to quantitative trading while managers who ignore it face irrelevance.

Rattray also compared traditional money managers with taxi drivers who are facing the threat of Uber and automated vehicles.

"You can either protest and block all the streets, like they do a lot in Europe, or you can say, ‘What the heck am I going to do about this change’ and get on with it and incorporate these new technologies,” said Rattray, 49, whose firm uses quantitative techniques on about two-thirds of its assets, although he appeared to gloss over his own glass house in that quants themselves recently suffered their worst performance since the February 2018 VIXtermination event, the August 2015 ETFlash Crash and the summer of 2007 "quant qollapse."

Still in a time when traditional, fundamental analysis no longer works in a world where central banks dominate stock election, he may have a point: the best human money managers are figuring out how to prevent themselves from being redundant and are incorporating natural language processing in the way they run their money, the CIO said, and as Bloomberg notes, "Point72 Asset Management and Coatue Management are among hedge funds that have been hiring scientists and adopting quant strategies."

So what was the quant's advice to upstart traders? Why become part of the Borg collective of course: Rattray said executing buy and sell orders is one of the easiest places to apply machine learning. Armed with huge amounts of data, traders can find clear patterns showing them the best banks to handle their orders.

In short:

  1. Apply machine language to buy and sell orders
  2. ???
  3. Profit

Since Man trades about $6 trillion to $7 trillion a year and uses machine learning to execute almost all of those wagers, one can't help but wonder if he is just talking his book. Incidentally, the book is big to quite big, at least for now: the London-listed firm, which also uses quant methods in its discretionary business having made most humans obsolete, oversaw $108.5 billion as of the end of last year.

“One of the things that I spotted in the past was that traders would favor those banks that had given them nice lunches, and I thought that was a really bad way of making trading decisions,” he added as a complete non-sequitur, while pissing off most of the people in the audience.

But the piece de resistance was when Rattray said that "some asset managers harbor a sense of exceptionalism, believing that algorithms can play an important role in health care and transportation but not in managing money", arguably envisioning himself as some silicon prophet of profit. 

We wish Rattray nothing but success, however we hope he remembers that when his strategy blows up like all other quant/algo strategies eventually do, and he blows tens of billions in investor funds once BTFD stops working - which for all the fancy lingo is the only real "machine learning" strategy - those who will be quite eager to make an appointment with the all too "insightful" manager armed with tar, feathers, pitchforks and whatever else the populist equipment du jour is, will be all too ordinary beings made of flash, blood and topped off with lots of furious anger.