Inside the Black Box: The Simple Truth About Quantitative Trading

12.5. EVALUATING INTEGRITY

Most quants, and most traders in general, are honest and ethical. Therefore, it is entirely reasonable to work with them on a "trust, but verify" basis. In other words, for most of the evaluation process it is reasonable to assume that the trader went to school where she claims, got whatever degree(s) she claims, and is generally not a criminal. But before making an investment, most observers would agree that to the extent possible, it's worth verifying a quant's ethics.

Here we have a few tools at our disposal. First, do background checks, education verifications, and reference checks. In the case of backgrounds and education verifications, serious problems in a trader's personal or professional history should probably serve as a red flag. Of course, this is a tricky proposition. The investor must determine whether the mistakes or misdeeds in a quant's past served to "teach her a lesson," or whether they indicate a likely pattern of behavior that will repeat, even if not in exactly the same way. That judgment cannot be made universally for all cases. But I encourage the investor to consider this question only from one specific angle, which might help drive the answer: The job of the investor is not to judge the quant as a person but rather as a potential fiduciary, acting on behalf of the investor. Fiduciaries are bound to act in their clients' best interest and to be very open and up front about any potential conflicts of interest or anything else ...