An Introduction to Quantitative Investing: Special Risks and Considerations (Part Three of Three)

Although both quantitative and fundamental strategies expose fund managers to similar risks, a quantitative manager’s heavy dependence on technology and mathematical models means that it must consider and address those risks differently. It must, for example, place greater emphasis on cybersecurity and intellectual property, given that a cyber attack or reproduction of the underlying model are more likely to cripple its trading. In addition, quantitative managers must contend with unique capacity constraints – which inform investor negotiations – and compete with the technology sector for talent. This article, the third in a three-part series, explores the heightened importance of cybersecurity and IP protection for quantitative managers; negotiations with investors over capacity constraints; and methods for quantitative managers to attract and retain talent in the face of stiff competition. The first article provided an overview of quantitative investing and the ways it differs from fundamental investing; discussed the growth of quantitative investing; and evaluated the practical risks and misconceptions of quantitative investing. The second article analyzed regulatory actions and guidance applicable to quantitative managers, as well as the special regulatory risks those managers may face. See our three-part series on how fund managers should structure their cybersecurity programs: “Background and Best Practices” (Mar. 22, 2018); “CISO Hiring, Governance Structures and the Role of the CCO” (Apr. 5, 2018); and “Stakeholder Communication, Outsourcing, Co-Sourcing and Managing Third Parties” (Apr. 12, 2018).

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