September 12, 2012, SAN FRANCISCO -- When something changes in the world and there is a new regime, the question is who is going to respond to it first.
That is the challenge, or really, the operating procedure, of David Andre, the chief executive of Cerebellum Capital, a quant fund based here.
Now, computing power is almost limitless, unlike even 10 years ago. Just ask the folks running Amazon Web Services or running data facilities like Equinix.
Now, information is running wild. There’s never been a greater diversity of information sources, says Jon McAuliffe, an adjunct professor of statistics, at the University of California at Berkeley who practices what he preaches as chief investment officer at Voleon Capital Management.
The challenge now is not to just bring together every scrap of news or every Tweet that has been turned into a value that a quantitatively-driven system can act upon.
The challenge is to make a system that doesn’t rely particularly extensively on human judgment, McAuliffe says. That finds the patterns and activities to act on – and recommends them to the system designers.
You don’t want a quant spending valuable (read: high-priced) time chasing down some elusive piece of “alpha.” You want the system to generate the ideas, now.
Maybe there’s no relationship. But it’s a haunting coda to the discussion held at lunch at TradeTech West on its first day by a bunch of algorithmic trading managers.
They weren’t surprised at all that Nomura, the first Japanese investment bank to set up shop on Wall Street, has essentially pulled back to its roots in Asia. This group actually expected Deutsche Bank, the folks who bring you the AutoBahn algorithms, to pull out from some place in the world, when it made its restructuring announcement Tuesday.
It didn’t. But the sense remains that there are an awful lot of humans are working to replace their brethren, in all forms of idea and alpha generation, with code.
The role of the broker? That could become exception management, said ITG managing director Will Geyer.
In the end, only the fastest to adapt will survive. And the adapting will never end.
It will only get faster.
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