Steven A. Cohen is betting as much as a quarter billion dollars that mechanical engineers and nuclear scientists can come up with market-beating mathematical models in their spare time.
The investment of as much as $250 million will go to a hedge fund launched by Boston investment firm Quantopian. That fund provides money to do-it-yourself traders who come up with the best computerized investing methods, giving a share of any profits to the creators.
Mr. Cohen, chief executive officer of Point72 Asset Management LP, is also making an undisclosed investment in Quantopian itself through his family-office venture arm Point72 Ventures.
The billionaire’s new commitments are part of a broader push in the money- management world to embrace quantitative investing, which relies mainly on math-based models to bet on statistical relationships or patterns in stocks, bonds options, futures or currencies.
Even hedge funds that have long touted their ability to beat the market are employing techniques borrowed from the “quants,” such as using data science to predict market movements and confirm hypotheses about connections between events. Some funds, for example, are combing through aggregated credit-card sales to predict earnings of retail firms.
Mr. Cohen previously ran the profitable hedge fund SAC Capital Advisors LP, which was shut down after it pleaded guilty to criminal insider-trading charges in 2013. Prosecutors never criminally charged Mr. Cohen but sought to bar him from the industry for life.
He reached a settlement with regulators in January that paved the way for him to manage other people’s money again in two years.
Point72 Asset Management oversees the personal wealth of Mr. Cohen, his family and employees. It already has an internal team devoted to computer-driven trading strategies.
Mr. Cohen’s new commitment to the fund will allow Quantopian to ramp up its investing and allocate more to each trading algorithm, said Quantopian CEO John Fawcett. The full $250 million from Point72 won’t initially be deployed, but as Quantopian meets certain performance metrics, new funds will be made available to the fund.
Quantopian says it has 85,000 users signed up from 180 countries who have created more than 400,000 algorithms on the company’s free web-based platform. So far, the firm has only selected 10 of those to trade a few hundred thousand dollars on behalf of Quantopian. The platform is only for U.S. equities trading so far, but Quantopian plans to expand to other asset classes.
Several other companies, include a quantitative group within Millenium Management LLC and another startup, QuantConnect, have systems that allow amateur quants to submit their algorithms for potential use in trading.
At Quantopian, the creators of winning algorithms include a mechanical engineer with a Ph.D. in computational fluid dynamics in Sydney, a data scientist at an internet mapping company in Denver and a consultant in Malta with a master’s degree in mineral and energy economics, according to the company.
Once a would-be creator logs into the Quantopian system, they can begin playing with data and code to create an algorithm. They can test it against old data or against live data flowing into the system.
Quantopian employees look for successful programs using an algorithm of their own that selects candidates based on some 50 attributes, including profitability and how an algorithm might fit into the hedge fund’s overall trading.
Quantopian “represents a really interesting new model of how to get talent into the investment industry,” said Matthew Granade, Point72’s chief market intelligence officer and co-head of the firm’s venture arm. The investment is the first of about six investments for Point72 Ventures planned by year-end, Mr Granade said.