Samantha Lee/Business Insider
As mega hedge funds like Millennium, Citadel, and Point72 battle for the best stock-picking talent, another segment of the multi-trillion-dollar industry has joined the fray.
Quant funds are increasingly turning to their longtime competition — human stock-pickers — to diversify their returns. Firms like Qube Research, Squarepoint Capital, and Engineers Gate are backing human traders through portfolios run by third parties, also known as separately managed accounts, or hiring them to trade internally.
Qube, the $20 billion London manager that started 2024 with a bang, has backed 44 stock-picking managers via its SMA platforms since the start of last year. This platform gives the firm insight into the managers' trading and risk management but allows the stockpickers to remain external and raise capital from other allocators.
The firm hopes to grow that number to 100 in the next few years, a person close to the manager told Business Insider. The firm declined to comment.
Squarepoint Capital declined to say how many portfolio managers it has backed on its SMA platform but noted that it only allocates to non-systematic strategies. The manager does not allocate externally to a strategy that would compete with one they have internally, according to Nicolas Janson, the firm's head of external investment strategies who joined at the start of 2022 to build out the platform.
"We want to diversify our alpha sources," Janson said in an interview with BI.
As these firms' assets swell thanks to strong performance, executives are constantly evaluating possible growth areas.
Engineers Gate, for example, is continuing to grow its footprint. The quant firm, which expanded to Asia earlier this year and runs more than $10 billion, according to regulatory filings, hired Mike Daylamani to build out a fundamental team, several people close to the firm told BI.
Daylamani will start in his new role in 2025 and comes from Schonfeld, where he ran a team that blended fundamental and quantitative strategies. He previously ran a similar team at Balyasny for a year after working as a fundamental portfolio manager for Steve Cohen at Point72 for close to a decade.
Two Sigma, one of the largest managers in the hedge fund industry, started hiring human stockpickers for the first time over the last few years, nabbing people such as Zach Rieger and Daniel Schuster, former partners at Maverick spin-off fund ROAM Global Management, in 2022, and Ernesto Cruz, who is the firm's director of research for fundamental equities after working as a portfolio manager for Singapore's sovereign wealth fund, in 2021.
While the manager cut 10% of its workforce in November, no PMs were included in the culling.
Firms that expand beyond their core strategies can occasionally struggle to integrate a different style, but big-name quant managers like Two Sigma and D.E. Shaw have been able to consistently generate returns as they've added investors focused on areas like private markets, real estate, and more.
In fact, D.E. Shaw might be the poster child for other quants considering expansion. The firm's website lists eight different discretionary strategies compared to three systematic offerings and two hybrid strategies that blend the two.
