JPMorgan Boosts Speed Trading Veteran’s $1 Billion Quant Fundby
Tradeworx founder Manoj Narang plans January open for new fund
JPMorgan alternative asset management to take minority stake
A veteran high-speed trader’s quantitative hedge fund raised almost $1 billion, bucking an industry malaise, and won the backing of JPMorgan Chase & Co.’s investment arm.
The firm, Mana Partners, will begin trading Jan. 1, according to Chief Executive Officer Manoj Narang. Clients of JPMorgan’s alternative asset management division took a minority stake in Mana Partners and intend to invest in its first fund, said Kristen Chambers, a spokeswoman for the bank.
Narang’s project comes at a time of reckoning for the money management industry, beset by sluggish returns. The first half of 2016 was the slowest for new hedge fund launches since 2009, with 406 hedge funds starting, according to Hedge Fund Research Inc. Long a fixture in the high-speed trading community, Narang wants to defy the trend, combining two different strategies: high-speed trading and a more traditional stock-picking technique known as statistical arbitrage.
“They have characteristics that cause them to perform well in different conditions,” Narang said in an interview.
High-frequency traders use cutting-edge technology, carefully guarded algorithms and a nuanced understanding of the underlying plumbing of financial markets to act as nimble intermediaries in fast-moving markets. Standing in the middle of others’ trades, they offer to buy from sellers and sell to buyers. Narang, who founded Tradeworx Inc. in 1999 before leaving at the end of 2014, knows those techniques intimately.
What’s different about Mana Partners is that it will combine those high-speed trading strategies with statistical arbitrage techniques. At the simplest level, statistical arbitrageurs track correlations between different kinds of stocks, placing bets when those relationships get out of whack.
While high-frequency traders tend to prosper in volatile markets, statistical arbitrage strategies work best in lower-volume, lower-volatility environments, where links between stocks are clear and perform predictably.
“These have been two historically disparate disciplines,” Narang said. “Long term, there’s going to be a convergence.”
Of course, identifying an investing opportunity is different than reaping real returns, and whether the strategy is viable remains to be tested. High-frequency trading strategies in particular are feeling their own squeeze recently. Teza Technologies is winding down its proprietary trading business to focus on its own quantitative hedge fund, which manages about $1 billion, the Financial Times reported earlier this month.
Mana Partners will trade in various asset classes, geographies and styles. Narang founded the fund with John Holena, who worked as a trader at Goldman Sachs Group Inc.’s fixed-income proprietary trading desk earlier in his career, and Erin Kogan will be chief financial and operating officer. Kogan worked as a trader at Knight Capital Group, a predecessor to KCG Holdings Inc., earlier in her career.
Quant strategies are becoming increasingly alluring to investors. Andreessen Horowitz and Steve Cohen’s Point72 Ventures joined a $25 million funding round for Quantopian Inc., an online platform where coders build and run computerized trading models.
Bloomberg News reported the creation of Mana Partners in March.