The engine of hedge fund - information and communication technology

On April 19, 2012 I led a team of ten first-year Global MBA students from The Johns Hopkins Carey Business School to visit Campbell and Company, one of famous hedge fund based in Baltimore. Founded in 1972, Campbell & Company is a pioneer in absolute return investment management, specializing in systematic managed futures and equity market-neutral strategies. Mike, director of trading, Jon and Grace, research manager gave us a wonderful presentation on how they do research and trade. There is lots of insightful information.



A hedge fund is an investment fund or asset fund that can undertake a wider range of investment and trading activities than other funds. Due to risk exposure, hedge fund is only open to some particular types of investors specified by regulators. Typically most of them are institutions and higher net worth individuals.

Hedge fund introduction

"We have tree trading teams", Mike told us, "North America team, Europe team and Asia team. They work for different hours. Now we can reach any major market in any place at any time, providing 24 hours a day and five days a week." How can Campbell and Company do that? Obviously the answer is ICT, information and communication technology. With the information technology, most of orders that Campbell & Company want to trade can be done through the internet connection to exchanges. Roughly one decade ago, traders at Campbell & Company needed to call the broker at the Chicago Mercantile Exchange. And then they had to wait for the deal to get done, maybe one hour later. Now all the order will be traded within thousandth second.


"We have a lot of models," the research manager Jon was very confident about the research levels at Campbell & Company, "With the help of the computer, we can quickly simulate trade with any model." If someone comes out any idea, it can be quickly turned to models. Then computer can run these models with huge historical data. With these kinds of simulations, models can be easily tested and verified. Without the computer, we can't image how this huge work can be done manually. Many hedge funds always bought the latest the most powerful computer or even mainframe to do models simulation. Once these models turned out to have very good positive results, they will be put the real market to make money. However, it needs the accurate execution by the computer. Only the computer can instantly calculate the data to verify if the conditions are met. In some sense, it is the computer not the people help hedge fund make money.

Hedge Fund Modelling and Analysis

                                                             

 Recently hedge funds are becoming more and more depending on information and communication technology. Who has fastest information gathering, fastest data communication and fastest data processing, and then he has most chance to win the money.  According to the Prime Finance 2011 IT Survey released by Citi, Hedge funds will spend approximately $2.09 billion on information technology (IT) in 2011.