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Research, technology and execution are the three core pillars at GreshamQuant

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GreshamQuant (GQ) is the systematic arm of Gresham Investment Management LLC, founded by Scott Kerson in 2016, with the first line of code written by Co-Head & Chief Scientist Dr Thomas Babbedge and first trade executed by Portfolio Manager Scott Klipper in March 2017.

From those small beginnings the GQ team now numbers twelve, with Tom Flannaghan and Jonty Field bolstering the senior leadership team as CTO and Co-Head & COO respectively, cementing what GQ considers the three core pillars of any systematic quant business: Research, Technology and Execution.

With backgrounds hailing from the big Commodity Trading Advisor (CTA) players such as Man AHL, Winton Capital and Cantab/GAM Systematic, and academic training in fields including extragalactic astrophysics, statistics, mathematics, high energy physics and computer science the team has been able to draw on a wealth of experience but also to take ‘the best bits’ and forge them into something both familiar yet starkly different in terms of GQ’s singular focus on alternative markets and in particular the nowadays oft-overlooked ‘C’ that lives at the heart of the CTA industry’s origin story – Commodities.

The choice to exclusively focus on commodities within the flagship strategy (Alternative Commodities Absolute Return – ACAR) is a very deliberate one. By focusing on commodities, the strategy ties itself very directly to real underlying physical things. These aren’t theoretical financial instruments; these markets represent things people need to dig up, or grow, or consume. With that comes all the idiosyncratic dynamics of supply and demand each commodity experiences, particularly given the focus on alternative commodities.

It is easy to forget that diversification is not just a number and in the case of the commodities ACAR trades, there is differentiation both molecularly, geographically, and temporally. This year’s sunflower seed harvest in South Africa versus base metal demand five years out where it will find itself in the teeth of a global energy transition are fundamentally different objects. From that perspective, the GQ view is that limiting ACAR to just alternative commodities leads to both a higher quality covariance matrix (and inherently low correlation to more traditional investments), but also higher potential alpha.

With the strategy’s pure trend-following approach, markets exposed to inelastic supply and demand factors very naturally tend to trend further and for longer as only strong re-pricings can either destroy demand or reduce supply. GQ wrote about this further in Babbedge & Kerson – “Trend’s Not Dead It’s Just Moved to a Trendier Neighbourhood” (2019).

Of course, there is a downside to this decision to limit the arena in which ACAR can operate and that is one of capacity. For GQ a key discipline is having a very hard line on the capacity of the strategy and preserving the quality of the offering. Necessarily, with a focus on more esoteric commodity markets the primacy of getting costs, liquidity and sizing correct, and to understand the old-school game theoretics of trading these high-touch markets, is one of ACAR’s key priorities and something that the usual quant approach of a back-test just won’t fully capture.

 


 

Jonty Field, Co-Head & Chief Operating Officer, GreshamQuant – Jonty Field is Co-Head & Chief Operating Officer of GreshamQuant and joined the team in July 2022. Previously, Jonty was Global Head of Product & Performance at Quantitative Brokers (“QB”) having joined as partner founding QB’s EMEA office. Prior to QB Jonty was Head of Trading Analytics for Man-AHL responsible for oversight of execution performance and electronic trading strategy. Jonty holds an MSc in Statistics from the London School of Economics.

 

Dr Thomas Babbedge, Co-Head & Chief Scientist, GreshamQaunt – Dr Thomas Babbedge is Co-Head & Chief Scientist, GreshamQuant. Thomas is responsible for developing the underlying methods and codebase for the firm’s systematic managed futures strategies, as well as on-going research into new trading systems, portfolio construction and risk management. Prior to joining Gresham in 2016, Thomas was a Senior Researcher at Winton Capital Ltd. During his time there he was, amongst other roles, Head of Investment Analytics and personal researcher for both David Harding (Founder) and Prof. David Hand (Chief Scientific Advisor). Previously, Thomas was a post-doctoral researcher in the Astrophysics group at Imperial College London (2004-2007), working on galaxy evolution, modelling and observations. Thomas holds a PhD in Extragalactic Astrophysics from Imperial College London and a Masters in Physics with Astronomy from Bristol University.

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