Quant hedge funds are facing challenges amid significant market volatility and losses since June, with firms like Qube and Two Sigma struggling. July is projected to be one of the worst months in five years for quants according to Goldman Sachs. They are analyzing how a surprisingly strong economy has created liquidity misalignments that have negatively impacted their strategies. Dark Forest Technologies notes the current conditions are unlike past crises such as 2007, identifying issues stemming from a resurgence in heavily shorted stocks forcing adjustments by smaller firms.
As the fundamental investing world marvels at another potential bubble made up of meme stocks and retail traders, quant hedge funds are trying to solve a much more complex problem.
Business Insider previously reported that quant firms have been trying to pinpoint the cause of the steady-drip losses that have eroded a hot start to the year in systematic trading.
Dark Forest Technologies, a quant fund run by former Bridgewater researcher Jacob Kline, wrote in a Friday note to investors that the current scenario is 'not at all like 2007,' when forced deleveraging inflicted rapid losses across the systematic space.
He theorizes that the resurgence in heavily shorted junk stocks in recent weeks has forced some smaller quant firms to sell their positions, adding to the pain for everyone.
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