Starting Quantitative Fund

I had started this in the CFA Forum, but people told me to move it over here. Anyway…


All, I devised an outstanding quantitative strategy and I’m running my own (meager) money in it now. Does anyone have any idea how to start getting an audited track record or putting together official documents to show to potential investors? What do funds/investors like to see? Just curious how to get started. Thanks.

Strategy results are below…

Futures based, but currently there are simple ETPs which can be used to run the strategy as there is very little trading (max 13 trades a month over 8 years), but I’m looking into how you could run this with capacity & with a prime broker, etc. The returns are epic. I did some risk adjustments to offer 3 versions (history Mar 2004 - Jan 2012): Version 1: 77% Annualized Return (yes, annualized, not cumulative), 62% Std Dev. (yes, massive) Version 2: 47% Annualized Return, 27% Std Dev. Version 3: 31% Annualized Return, 21% Std Dev. And yes, if you are wondering, that Version 1 would have returned around 93x your original capital invested in Mar 2004 by Jan 2012. Been running it live since last year and I’m up 60% or so.


meet palantir…the guru of this thing…bow down!

are you using leverage?

are you a closet beta?

I think they said it’s a futures system, so yeah, there’s almost certainly leverage.

My concern would be that 2004-2012 may not be a very representative market cycle going forward. If you’ve optimized a trading system on those dates, I’m concerned about how it would perform out of sample. However, up 65% sounds nice for a real track record. As jmh said (I believe) earlier, with that level of volatility, it’s difficult to know if 65% is luck or skill.

Are you levering fixed income futures? Particularly treasury futures? Those trends might change dramatically.

Finally, what’s the correlation to major indexes like the S&P 500?

I’m not trying to throw water on your parade, but these are just some things to think about before betting the farm on it.

Sharpe Ratio is around 1.2-1.6 for those numbers, depending on the system, which is a very nice number, though not quite as amazing as the raw returns numbers would make you think at first. A levered-down version of the system might be nice, unless it requires substantially more capital.

Which version of the system are you running for yourself?

Nope. No leverage. No beta. VIX futures only. No treasury futures.

Good questions Chadwick. Yeah, I know what you mean about 2004-2012, but that cycle has seen alot of ugly market dislocations and chaos. So I feel pretty good if it can survive that, it can survive anything.

Correlation to S&P 500 = 0.01, Sharpe Ratio = 1.17. Although I believe version 2 or 3 has a sharpe ratio of 1.31. Not at work right now so can’t remember exactly.

I am running the main system I first devised. Version 1. Most volatile, but highest possible reward.

Ah, VIX. I think I know this strategy. I did a version of something with VIX that had similar return and volatility results. The return is stunning; the drawdowns are extreme, and I didn’t have a capital account that could handle the volatility. I also found that my version it didn’t work much with the ETFs that follow VIX, though; there’s a whole lotta tracking error that gets in the way.

Sounds awesome, can you briefly explain the strategy ( if its not confidential). You know you could also start talking to some quant funds, and they may give you an idea of how you might present your case.

You could also go on although I don’t know how useful that site still is.

I think i will use Palantirs strategy of selling some puts on positions I want to take…i’m still working through the details but its quite good…i selll a put on a stock for around a buck and look to buy it back at 6…which means my effective cost of entry is 5…amazing…

I think you should target BRK.B with that, mostly because it is a large, stable stock with an effective floor set at P > 1.1*BV. I think it is an effective strategy to get some returns while all your target stocks are above your target prices.

the premiums on the BRK.B isn’t that good…you get nothing for selling it…i don’t want to tie up that much capital on something like that…on one of the stocks i want to do this for (euro bank) i get a return on capital of 15%+ immediately…my entry price for BRK would be 55-60…nobody is buying puts on that…buffet has effectively placed a floor to the trading price in the short term with his buyback announcement…

Palantir - it is kind of confidential, but just so you have some idea - it looks at the VIX futures curve, VIX spot, and makes decisions based on a multitude of factors surrounding them. It does feel more trend-following that anything, having run it for a bit. I’ll checkout that website. Thanks.

FrankArabia - could you please not hijack the thread. Just looking for some advice as to what I should prepare for people to look at - monte carlo simulations, pitchbooks, factsheets, audited track records, etc…


suckas get jacked…

but i will play nice and leave your thread…

@bchad I don’t think post anything on the older thread, but I think I wrote up posts like three times before deciding not to post them.

@PistolPt So you use VIX and its shape to make entries/exits within a trend following system. I’ve seen and developed strategies like that. Based on your returns, I expect you likely take very concentrated positions. I wouldn’t be surprised if many quant funds have also seen similar things, but I don’t know anything about the specifics of your strategy and maybe your’e doing something novel.

That being said, I’m not sure what information you get from the VIX futures curve. Presumably is provides some insight into the term structure of implied volatility, correct? A higher VIX some time in the future would imply a higher implied volatility for longer-dated options. Given the assymmetric nature of volatility shocks, that would suggest an equity market correction (of course in periods when high volatility is more symmetric, you could be wrong).

Statistically speaking, you may want to look at how good of a predictor it actually is. For instance, for foreign exchange there is research that uncovered interest rate parity doesn’t hold (which means that forward fx prices are not the best predictors of future fx rates).

Presumably, if the shape of the VIX futures curve could predict realized volatility, then you could construct a high Sharpe ratio strategy using options to take advantage of it.


-Yes, VERY concentrated, as in the strategy effectively leans one of three ways. Nothing terribly novel I’m sure - but I do take advantage of how the futures curve is positioned on a daily basis. Since a vast majority of the time it experiences sizeable contango, there should be some oportunities there, provided you get out of the way when volatility spikes occur (always the challenge).