FT : Hedge funds adopt novel methods to hunt down new tech talent

Hedge funds adopt novel methods to hunt down new tech talent
Wall St tries coding competitions and data challenges to find new recruits

Graphic novels, coding competitions, mammoth pay packets and even entire university research centres are just some of the tactics hedge funds are turning to as they seek to win an intensifying war for technology talent.

So-called quantitative hedge funds and investment banks have long fought with Silicon Valley for the brightest programmers and data scientists, but traditional asset managers are now throwing themselves into the fray, in a big bet that the future of investing is machine intelligence and Big Data, not human nous and quarterly corporate results.

“The talent war is unprecedented,” said Yin Luo, head of quantitative research at Wolfe Research and a former top strategist at Deutsche Bank. “It’s nearly impossible to find people with experience in both computer science and finance. So it’s all about raw talent.”

To unearth this raw talent, investment groups are trying unorthodox approaches such as coding competitions and freestyle data challenges to unearth hidden gems outside the usual elite universities.

Two Sigma, one of the biggest quant hedge funds, is running a competition on Kaggle, an online platform popular with data scientists, where contestants will have three months to code a trading algorithm based on four gigabytes of financial data provided by the US hedge fund. The winner will soon pocket $100,000.

Ostensibly the aim of the contest is to raise awareness and interest in finance, but the hedge fund also hopes to find some potential hires among Kaggle’s 730,000 user base from across the world.

Instead of a traditional but staid leaflet, potential hires at Two Sigma are given a graphic novel that explains the hedge fund’s approach and benefits, such as a “Monte Carlo Hill Climbing Lunch”, where a Monte Carlo algorithm once a week selects four “Sigmas” to invite. If at least three accept, the lunch is arranged. “As if there were a better way to pick people to eat with,” the graphic novel says.

“While attracting talent is never easy, we find that our culture and people are a differentiator as we speak with potential candidates,” said Scott Grabarski, head of engineering human resources at Two Sigma.

The Kaggle competition follows in the footsteps of WorldQuant, a hedge fund that manages $4.5bn for Izzy Englander’s Millennium Management. It runs a “WorldQuant Challenge” designed to give “curious and strategic-minded individuals the opportunity to learn about quantitative finance, compete with global participants and potentially earn a research consultant position” at the hedge fund.

Underscoring the battle for talent as new players enter the space, WorldQuant late last year sued a former data scientist for breach of contract when he left to join Dan Loeb’s Third Point, alleging that he had been promised a tenfold increase in his salary to $2m. The case was quickly settled out of court.

Several UK hedge funds have led the way in partnering with universities to access the talent pipeline directly. For example, Man Group has financed a centre for “machine learning” — a field of artificial intelligence — at Oxford university, and last year Cambridge university opened the Cantab Capital Institute for Mathematics of Information, funded by Cantab Capital.

For smaller firms the challenges in finding good staff can be particularly intense. “The talent is the hardest part. A lot of my time is simply spent cultivating people,” said Scott Borgerson, the head of CargoMetrics, a Boston-based quant hedge fund. “World class people are very sought-out.”

>>> Asian Update

Asia Mid-Session Market Update: China inflation data diverge with a pop in wholesale and a slump in retail

***US Session Highlights***
- Appaloosa's David Tepper: market on multiple basis is kind of full, but seeing synchronized growth globally; short bonds, long US and European stocks; thinks Central Banks, ECB in particular, will have to play catch-up following French elections
- (US) FEB ADP EMPLOYMENT CHANGE: +298K V +187KE; Jan revised higher, weather helped
- (US) Q4 FINAL NONFARM PRODUCTIVITY: 1.3% V 1.5%E; LABOR COSTS: 1.7% V 1.6%E
- (US) JAN WHOLESALE INVENTORIES (FINAL) M/M: -0.2% V -0.1%E; WHOLESALE TRADE SALES M/M: -0.1% V +0.5%E
- (US) DOE CRUDE: +8.2M V +1.5ME; GASOLINE: -6.5M V -1.5ME; DISTILLATE: -2.7M V -1.5ME (largest weekly drop in gasoline stocks since 2011); total production rose by 56K bbls

***US markets on close: Dow -0.3%, S&P500 -0.2%, Nasdaq +0.1%***
- Best Sector in S&P500: Healthcare
- Worst Sector in S&P500: Energy
- Biggest gainers: HRB +14.9%, TRIP +6.1%, PPG +6.0%, COH +33%, M +3.1%
- Biggest losers: MRO -8.7%, MUR -6.7%, DVN -6.5%, CHK -6.1%, NFX -5.4%
- At the close: VIX 11.9 (+0.4pts); Treasuries: 2-yr 1.37% (+4bps), 10-yr 2.55% (+4bps), 30-yr 3.15% (+4bps)

***US movers afterhours***
- APRI: Announces sale of Ex-U.S. Vitaros Assets and Rights to Ferring Pharmaceuticals; +32.3% afterhours
- VVUS: Reports Q4 $0.54 v -$0.09e, R$81.8M v $15.3M y/y; +26.9% afterhours
- ELF: Reports Q4 $0.19 v $0.13e, R$76.4M v $74.4Me- Guides initial FY17 $0.40-0.43 v $0.36e, R$285-295M v $281Me; Adj EBITDA $61-64M; +16.2% afterhours
- SMTC: Reports Q4 $0.37 v $0.35e, R$140M v $138Me; Guides Q1 $0.39-0.43 v $0.37e, Rev $138-146M v $141Me, gross margin 58.6-59.7%, capex $10.0M; +7.1% afterhours
- TGTX: Announces Proposed Public Offering of Common Stock for an indeterminate amount through Jefferies; -3.4% afterhours
- CWH: Reports Q4 $0.14 adj v $0.09e, R$670M v $676Me; -4.8% afterhours
- RATE: Reports Q4 $0.16 v $0.18e, R$113.6M v $122Me; Guides Q1 adj EBITDA $26-28M, R$115-118M v $113Me; -10.5% afterhours
- TLRD: Reports Q4 -$0.19 v -$0.11e, R$793M v $824Me; Guides FY17 $1.47-1.75 v $2.12e; -29.2% afterhours

***Politics***
- (US) Former US Ambassador to China Jon Huntsman said to accept Pres Trump's offer to serve as Ambassador to Russia - press
- (US) Pres Trump said to consider sending up to 1K troops to Kuwait to serve as reserve force in a battle against ISIS - press

***Asia Key economic data:***
- (CN) CHINA FEB CPI M/M: -0.2% (first decline in 4 months, biggest decline in 9 months) V +1.0% PRIOR; Y/Y: 0.8% (2-year low) V 1.7%E
- (CN) CHINA FEB PPI Y/Y: 7.8% V 7.7%E; 6th consecutive and biggest increase since Sept 2008
- (JP) JAPAN DEC LABOR CASH EARNINGS Y/Y: 0.5% V 0.4%E ; REAL EARNINGS (EX-INFLATION) Y/Y: 0.0% V +0.1% PRIOR
- (JP) JAPAN FEB M2 MONEY STOCK Y/Y: 4.2% (highest since Aug 2015) V 4.2%E; M3 MONEY STOCK Y/Y: 3.6% V 3.6%E

***Asia Session Notable Observations, Speakers and Press***
- Asia indices are largely lower, tracking the 3rd consecutive down day in the S&P500. Nikkei225 is among the few gainers, helped by weaker JPY in the wake of a blowout ADP jobs report that sent US Treasury yields and USD higher across the board. Benchmark 10-year yield rose as high as 2.58% - the highest level of 2017 - while Fed Funds futures now price in over 40% chance of 2 rate hikes in the first half of the year.
- In FX, USD/JPY approached 114.60 in Asia session, just shy of US hours high, while AUD/USD fell to 7-week lows near 0.75. NZD/USD was also sold off on USD strength, falling below $0.79 for the first time since early Jan.
- Energy sector was the worst performer on the S&P500 for the 2nd straight day, remaining in the doldrums in the wake of the latest inventories data that showed little evidence of production curbs - DOE increase was the 9th straight build and also the highest in 3 weeks. Weakness in the energy space in Australia and Hong Kong reflected falling oil prices.
- China inflation data was the highlight of the economic calendar for the session with what is now a trifecta of surprises, following unexpected trade deficit overnight and return of FX reserves about $3T earlier. Feb PPI rose for the 6th straight month and to its highest level since Sept 2008 thanks to recent jump in commodity prices. Conversely, CPI fell m/m for the first time in 4 months, and y/y figure hit a 2-year low after a near-3-yr high last month. Food component shrank sharply, down 4.3% after rising 2.7% previously, as NBS noted that the number of tourists declined last month with seasonality around the timing of Lunar New Year continuing to play a part in data distortions. Also of note, PBoC skipped its daily open market operations in reverse repos, claiming that liquidity in the banking system basically stable while also setting CNY weaker for the 3rd straight day.
- In Japan, Toshiba was hit especially hard on press speculation of expanded loss related to nuclear ops as well as rising challenges of meeting the deadline for releasing already delayed Q3 earnings report.
China
- (CN) China listed banks NPL ratio may reach 1.8% in 2017 v 1.7% prior - Chinese press
- (CN) ANZ: Expect China to move back to trade surplus in the coming months - Chinese press
- (CN) China regulators said to have ordered banks to inspect their internal controls - Chinese press

Japan
- (JP) Japan Fin Min Aso: Keeping FY20 primary budget surplus a goal
- (JP) Japan foreign min Kishida: North Korea to be important theme of US State Sec Tillerson's visit; Aware that all options are on the table - press

Australia/New Zealand
- (AU) Australia PM Turnbull: Political friction causing a risk to AAA rating: Australia has a credible path to a surplus to help maintain its AAA rating - AFR
- (AU) Australia Newcastle Feb coal exports -12.2% m/m at 11.6M tons - financial press
- (NZ) BNZ lowers New Zealand Q4 GDP forecast to 0.4% from 0.6% following weak manufacturing report - press

Korea
- (KR) Economic Research Institute of Industrial Bank of Korea: Economic retaliation by China to Korea's THAAD system may cost Korea GDP about 1.1pct - Korean press
- (KR) South Korea Finance Ministry monthly report: Export recovery to continue; Domestic demand remains weak

***Asian Equity Indices/Futures (00:00ET)***
- Nikkei +0.3%, Hang Seng -1.0%, Shanghai Composite -0.9%, ASX200 -0.3%, Kospi -0.1%
- Equity Futures: S&P500 flat; Nasdaq flat; Dax flat; FTSE100 flat

***FX ranges/Commodities/Fixed Income (00:00ET)***
- EUR 1.0530-1.0547; JPY 114.30-114.60; AUD 0.7510-0.7535; NZD 0.6895-0.6915
- Apr Gold -0.4% at $1,205/oz; Apr Crude Oil +0.6% at $50.59/brl; May Copper flat at $2.59/lb
- SLV: iShares Silver Trust ETF daily holdings fall to 10,303 tonnes from 10,350 tonnes prior; 11-month low
- (CN) PBoC skips open market operations for today's session v injecting CNY30B yesterday
- (CN) PBOC SETS YUAN MID POINT AT 6.9125 V 6.9032 PRIOR; 3rd straight weaker setting; weakest CNY setting since Jan 12th
- (JP) Japan MoF sells ¥2.21T in 0.1% 5-year JGB bonds; avg yield -0.118% v -0.089% prior; bid-to-cover 2.86x (lowest since Oct 2015) v 4.26x prior
- (AU) Australia 10-yr govt bond yield rises to 2.84%; 15-month high

***Asia equities / Notables / movers by sector***
- Consumer discretionary: 419.HK Huayi Tencent Entertainment Company -4.8% (FY16 guidance); TTS.AU Tatts Group +2.6% (ACCC comments); NEC.AU Nine Entertainment +2.7% (Macquarie raises rating)
- Financials: 832.HK Central China Real Estate -4.8% (profit warning)
- Industrials: 3808.HK Sinotruk -2.0% (FY16 guidance); 9064.JP Yamato Holdings +1.8% (Nomura raises rating); 6472.JP NTN Corp +2.4% (Mizuho raises rating)
- Technology: 6502.JP Toshiba Corporation -6.9% (Japan press speculates co. having difficulty in preparing Q3 earnings before deadline and nuclear writedown may rise); YPB.AU YPB Group +6.5% (receives order); QMS.AU QMS Media +2.2% (APN shows interest)
- Materials: 2362.HK Jinchuan Group International Resources -1.1% (guidance); WHC.AU Whitehaven -4.4% (Spot coking coal firms on China buying before contract talks)
- Energy: 931.HK China LNG Group -6.0% (profit warning); 883.HK CNOOC -2.1%, WPL.AU Woodside Petroleum -1.2%, BPT.AU Beach Energy -1.8%, STO.AU Santos -3.3% (oil falls over 5% in US session); 5017.JP Fuji Oil Co -2.2% (SMBC cuts rating)
- Utilities: 6841.JP Yokogawa Electric Corp -2.8% (Credit Suisse cuts rating)

FT : EU demands prediction of fund performance in crisis

EU demands prediction of fund performance in crisis
Asset managers will have to forecast returns under distressed market conditions

Asset managers will be forced to provide investors with predictions of fund performance in the event of another financial crisis under new European rules aimed at strengthening consumer protection.

The European Commission yesterday signed off the controversial new measures that will ensure investor documents include forecasts of fund performance during distressed market conditions.

Sven Giegold, the German MEP who is a member of the influential Economic and Monetary Affairs committee at the European Parliament, said the rules would ensure investors were better informed of risks. “This is good news for investors,” he said.

However, the contentious move has been met with anger by both investor rights groups and asset managers. They fear it will add unnecessary complexity and could discourage consumers from investing for their future.

Guillaume Prache, managing director of Better Finance, a Brussels-based group that lobbies for investor rights, said: “[This] will further confuse and deter retail investors.”

The new rules were finalised following months of negotiations between the European Commission, the EU’s executive arm, and politicians within the European Parliament.

The measures, which fall under a vast set of consumer-focused rules known as Priips, will also force asset managers to predict future performance based on three scenarios, ranging from adverse to good.

Asset managers will not be required to highlight past performance figures in the so-called key information documents.

Martin Bamford, managing director of Informed Choice, an independent financial adviser, said: “Extending the contents of these [key information documents] to include stress-test data and a range of market forecasts simply adds to the information most investors will ignore.”

Justin Bates, an asset management analyst at Liberum, the broker, said the commission was adding “a layer of additional complexity to an already contentious subject and one that will surely be open to significant interpretation and, in reality, impossible to model accurately”.

The asset management industry had undertaken a big lobbying effort to convince European officials to include past performance in the investor document, rather than predictions of future performance.

The commission ruled out this approach, although it is understood the calculations for future performance will take previous returns into account.

A spokesperson for the BVI, the trade body for asset managers in Germany, said: “We think past performance data are the most reliable performance-related information one can obtain on investment funds.”

Tristan Chapple, a director at Phoenix Asset Management Partners, a UK investment boutique, added: “Surely the best guide to future performance is a long-term record of doing the same thing?”

The commission amended the measures to include performance predictions in stressed market conditions after clashing with European politicians about the rules last year.

MEPs rejected the commission’s first set of proposals last autumn — a first in financial services regulation — as they were worried the planned changes would mislead investors.

At the time, Mr Giegold criticised the commission’s proposed formulas for predicting performance, arguing the figures contained a “huge flaw” that would make performance look far better than it is likely to be during another financial crisis.

On Wednesday the German MEP welcomed the introduction of a distressed-performance prediction. He said this should mean investors understand the “real risks” of their investments.

>>> US After Hours Summary: ELF +16%, SMTC +7% following earnings/guid


After Hours Summary: ELF +16%, SMTC +7% following earnings/guidance, APRI +34.2% on asset sale news/NDA update... TLRD -29%, SPPI -10%, WATT -7% following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: VVUS +24%, ELF +15.6%, SMTC +7%, CMTL +4.7% (light volume), ERII +3.3%, KEYW +1.9% (also signs a definitive agreement to acquire Sotera Defense Solutions in an all-cash transaction valued at ~$235 miln)

Companies trading higher in after hours in reaction to news: APRI +34.2% (completes sale of its ex-U.S. assets and rights related to Vitaros to Ferring International; co will retain its Vitaros rights in the U.S. and it remains on track to re-submit the Vitaros NDA to the FDA in the third quarter of 2017), FOLD +3.9% (ticking higher - commences the commercial launch of the precision medicine Galafold in Italy following the final publication of reimbursement guidelines by the Ministry of Health), GNC +3.4% (Chief Innovation Officer disclosed purchase of 29500 shares worth approx $230K), CIA +1.1% (modestly rebounding after issuing statement regarding today's cautious blog post, strongly disagrees with its assumptions and conclusions)

After Hours Losers

Companies trading lower in after hours in reaction to earnings/guidance: TLRD -28.8%, NSYS -12.1% (thinly traded), SPPI -9.6%, WATT -6.9%, HEAR -6.4%, CWH -4.6%, VNET -4.3%, TVIA -3.8% (also TerraVia, Bunge, and BioMar Group expand their distribution agreement for AlgaPrime DHA; 'making the product commercially available at scale to salmon farmers and other participants in the aquaculture industry'), BETR -2.8%, SFS -2.8%

Companies trading lower in after hours in reaction to news: PLNT -3.9% (commences 15 mln common stock offering by selling stockholders), BCRX -3.8% (to sell $45 mln of its common stock in an underwritten public offering), TGTX -3.4% (to offer and sell shares of its common stock in an underwritten public offering), SBGI -1.9% (commences an underwritten public offering of 12.0 million primary shares of Class A common stock)