Thu, 26/02/2009 - 06:01
Many financial institutions and investment managers are moving away from risky strategies, but one group of people seems intent on venturing into hazardous territory.
Deutsche Bank's quantitative trading group is leaving the Frankfurt-based bank to start a hedge fund. Equitech Group, the bank's proprietary equity unit, is forming Roc Capital Management, which will be based in New York and run by Arvind Raghunathan, Deutsche's head of global arbitrage.
Roc Capital will open for business in the second quarter of this year with more than 20 people including traders and scientists, supported by a team of 40 people in India who have been trained by Equitech.
The move comes as Deutsche reduces its exposure to riskier business area. Earlier this month, the bank's chief executive Josef Ackermann announced that resources were being shifted away from areas such as proprietary trading, reducing the level of risk in this area by around 75 per cent.
It is certainly a tough time to start a hedge fund, especially using quantitative strategies. Quant funds, which use statistical models designed to identify patterns in financial markets, ran into trouble last year when many models failed to predict the market impact of the credit crunch, and managers suffered a net outflow of USD9.3bn in the third quarter.
However US consultancy Tabb Group predicts that by next year algorithmic trading, one type of quant investing, will account for half of all US equity trading, and the Deutsche quant group clearly believe it's an area where money can be made. It may be too risky for their former employer - but as they say, no guts, no glory!
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