Rolling out a quant strategy Part 1

  1. Prep work

  2. Sponsor buy-in

  3. Horse

  1. Prep work: structure and attribution + compensation

    1. Financial structure: enhance trading operation, enhance investment product, new product,

    2. Deciding on attribution

    3. Compensation

  2. Culture buy-in. Attempt to get quant culture buy-in — from LPs or senior manager

    1. Describe how weird quant culture is to a senior manager/sponsor.

    2. Communicate conservative initial estimates of costs.

    3. DO NOT under any circumstance project PnL.

    4. Communicate longevity of quant

    5. Even the slightest hesitation — wait until demand is stronger. Phase 1 will typically be negative PnL — which usually turns hesitations into permanent opposition. We also have a way to move forward in the presence of hesitations, but waiting is nearly always better.

  3. Building the “horse”

    1. Prep for data.

    2. Acquire free or cheap data — press “record”

    3. Note: “data strategy” should wait until later.

    4. Gather internal data

    5. Build or contract with new quant-centric data team.

    6. Establish rough quant and data ops plan

  4. Decide on the strategy — how to integrate quant investment is critical. (Good performance metrics — attribution — is an enhancement that tends to keep management and peer support for quant strategy stable. Good attribution and good compensation keeps the team stable. Hiring and integrating people into quant is exceptionally expensive, so an unwise retention strategy is wasteful and can end up burning the ground for quant for years. )

  5. Build a quant culture