Chapter 18. Quant Funds
“Because of the lack of transparency and coordination within the hedge-fund industry and the strong relationship between performance and business viability, competitive pressures will lead managers and prime brokers to increase leverage in an ‘arms race’ for generating better returns.”
Andrew W. Lo of Massachusetts Institute of Technology
Too much money tends to chase good ideas until they get overcrowded, setting up a crash when the crowd goes the other way. When the same investors crowd into many different investments, as quant funds did in 2007, the herd can move in surprising directions. This happened when a credit hedge fund asked its lenders for leniency in June 2007 and sparked a crisis for unrelated quantitative ...
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