The Allure of the Freelance Quant

Robert Carver, author and retired executive at quantitative hedge fund AHL, poses this seductive question to quants: “What if you could work for yourself, and still build hedge fund trading systems?”

Imagine developing a trading strategy and then selling it or licensing it to a fund for big dollars or a share of the profits. “For the quant,” writes Carver in an article for eFinancialCareers, “This is a pretty good deal, as they can now go and live on a beach somewhere after doing a few years of hard work.”

“This is the world of freelance signal generation,” explains Carver.

Freelance quants are not new, if not yet common. However, there are signs that interest in the concept is growing. Another eFinancialCareers article last month said quant fund QRT was recruiting “external alpha generators” and already had three on board with plans to hire 20 in the next few years.

Being a freelancer, Carver says, “Sounds like a fantastic opportunity for both quants and hedge funds.”

“But is this really true?”

Carver goes on to point out the pros and cons, which are not so much cons as potential pitfalls of such arrangements.

Selling the strategy to a fund sounds like a good deal, Carver agrees, unless the fund doesn’t pay or swipes the basic strategy. There are risks for the fund, too, he says, including the potential for the model to stop working or not work on data it hadn’t previously encountered.

Instead, Carver says a licensing arrangement is often preferred by both sides. The freelancer shares in the profits the model generates and the fund continues to get the quants continued involvement.

The downside is the potential for being underpaid, as well as the difficulty in even knowing whether the fee is correct, he says. “This is especially true for models providing signals rather than explicit trades, since there are no specific positions which can be directly attributable to a specific signal.”

Carver goes on to discuss code hosting arrangements, noting that “A truly paranoid freelancer trader may wish to host their systems on their own computers, or more likely on a secure cloud.”

Ironically, instead of becoming free of the daily grind, running such a hosting operation means hiring IT support and even junior traders. In essence, says Carver, The quant is effectively running their own mini hedge fund.”

“We’re going to need a bigger beach house.”

Photo by Mohamed Ali

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