Lehman deconstructs the quant fund meltdown

Fri Aug 10, 2007



Quantitative hedge funds are facing a run on the bank. Tens of billions of dollars in these black box-driven strategies are “misbehaving,” and nobody seems to know exactly why.

A report released by Lehman Brothers yesterday attempts to deconstruct the behavior of quantitative funds, some of the mostly highly regarded of which – Renaissance Technologies, AQR Capital Management and Goldman Sachs’ Global Alpha – are said to be carrying big losses as the equity markets slid almost 3% Thursday and opened down on Friday morning.

“The situation developing among quantitative fund managers has all the hallmarks of a classic ‘run on a bank’ situation,” wrote Lehman analyst Matthew Rothman. He noted that the trouble is not manager specific but extends to the entire quantitative equity strategy.

The level of market volatility thus far in August, much worse than July’s choppiness, has only...

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