Managed Futures: "Quant funds suffer dismal ‘QE’ losing streak"

From the Financial Times:

How does a hedge fund react to losing a quarter of its investors’ money in a matter of months?
Double-up? Blow up? Or buy Lego and wait?

Cantab Capital, a multibillion-dollar quant hedge fund, run by computers (or rather, run by maths geeks who run computers) went for option three. The irreverent – and until this year, highly profitable – Cambridge-based firm, set up by Goldman Sachs’ former head of quantitative trading, spent £2,000 on Lego to boost staff morale this summer after a painful losing streak struck hundreds of millions off its trading portfolio’s value. 

Cantab’s travails speak for a vast swath of the $2.5tn hedge fund industry: so-called managed futures funds, which use computer models to spot and ride trends in global futures markets, have had a dreadful ten months. 

And perhaps the best thing they should do is nothing at all.

According to data provider Hedge Fund Research, the average managed futures fund lost about 3.7 per cent in the first three quarters of 2013. October has been a good month, say industry insiders – but not good enough to pull managed futures managers back into the black. In any case, the medium-term story is grim too. Managed futures funds have made their investors money in only one of the four previous years (2010).

It is a losing streak that would give anyone pause for thought. And the question that seems to rise time and again is: is the managed futures model broken? For Man Group, the world’s second-largest hedge fund manager, this questioning – and the stuttering of its huge flagship managed futures fund AHL – has utterly destroyed shareholder confidence in the company. London-listed Man used to be in the FTSE 100. In mid-2008, it had a market capitalisation of $20bn. Now it is $2.5bn....MUCH MORE