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Sweden’s hedge fund collapse puts the spotlight on Quants

(Bloomberg) – As one of Sweden’s oldest hedge funds shuts down, investors are trying to sort through the wreckage to figure out what exactly went wrong. It is now clear that the quantitative strategies used by his fund have failed to cope with the market movements caused by the pandemic. But he rejects the idea that the quants have had their day. “There is definitely a future for quantitative hedge funds,” he said on Thursday. IPM, a Stockholm-based systematic macro-fund, began bleeding clients’ money over a year ago. , with around $ 4 billion in assets under management since the end of 2019. Ericsson says the fund’s medium-term models have failed to handle the shock that hit the markets in early 2020. “When the pandemic is over happened, it was a total surprise to the models, ”he said. but bad transactions prior to the pandemic have come back to haunt the fund. Its relative stock models have weighed on performance for years, in part due to a strategy based on value stocks. This year, IPM’s models misjudged the relative gains in interest rates. Ericsson still thinks everything would have worked if IPM had had a little more time. Just six months ago, he even hired people from Goldman Sachs to help him grow his business. But customer withdrawals were too intense and the fund had to give up. “We were about to add short-term factors, which would have been good diversifiers,” he said. “But unfortunately, we won’t have that chance now.” Is the industry in decline? IPM joins a growing list of closed-end hedge funds in recent years as investors rethink their allocations to the industry. More hedge funds have closed than started in the past six years, of which 770 closed in 2020, according to data compiled by Hedge Fund Research Inc. The last year has been particularly difficult for computerized quantitative funds, including behemoths. such as Renaissance Technologies, Winton’s Systematic Macroeconomic Strategy and Two Sigma.IPM has applied fundamental macroeconomic principles to classify asset classes and economies. He then distributed the money among asset classes including sovereign debt, stock indices, commodities and currencies across the world. The model was based on historical statistical data and relied heavily on computers. Jonas Thulin, who oversees $ 6 billion as head of asset management at Erik Penser Bank AB in Sweden, says Ericsson is right about it. defend quantitative strategies, despite the disappearance of IPM. However, Thulin, who has been able to roughly quadruple assets under management since 2018 using macro strategies, says quantitative models become dangerous when applied too narrowly. Thulin says the way around this problem is with a methodology he calls “macro dynamics”. The idea is that asset managers “constantly manage parallel universes of historical relationships and explanatory variables and structures”. Part of the idea is also that the model is not used to predict the future, “but rather the market perception of the future,” which requires monitoring of human mental health. This approach has enabled Thulin to generate a return of 26% over the past year. on the multi-asset portfolio of his company, compared to the annual return of 5 to 7% that it aims. The global equity portfolio he oversees is up 39% over the period. Ericsson notes that the long-term trend suggests that the share of total assets under management in quantitative strategies is increasing, “although there may be a temporary decline now.” for IPM, “assets under management have shrunk faster than expected and with this asset base it is difficult to maintain the quality we want.” (Added comment in 8th paragraph, more details on strategy in 11th) For more posts like this, please visit us at bloomberg.com Subscribe now to stay ahead with source d most reliable business news.


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