Pressure to come up with the next big quant model is growing exponentially as the number of quantitatively driven funds has increased. However, because short-term strategies only work for three or four months, there is a more urgent need for rapid construction and implementation of alpha generation models, writes Aite Group in a new report published this week.
The report focuses on the emergence of “alpha generation technology platforms that are designed to create a more centralized and streamline process and improve the productivity of quants.
Currently, the entire process of idea generation to implementation can take anywhere from 10-to-28 weeks. “Unfortunately, today’s market reality is littered with disparate homegrown and third party applications tied together only by the creativity of the quants,”writes Aite Group senior analyst John Jay in the report titled “The World According to Quants: Enter Alpha Generation Platforms." In order to unify the different components, a new type of platform has emerged which Aite Group has named “alpha generation platforms.”
What’s fueling the demand for such platforms is the growth of quantitatively driven funds. Aite Group estimates that 12 percent of all global assets under management, totaling $6.65 trillion, were driven by quantitative analysis at the end of 2007. This amount is expected to grow to 14 percent by the end of 2010 or $10.86 trillion.
On the hedge fund side, the growth in assets under management in more sophisticated investment strategies has led to the adoption of quantitative analysis, accounting for 75 percent of all global hedge fund assets under management, according to Aite’s report.