Robert Litterman: lessons from the quant quake

Crowding, too-big funds and too much equity exposure are the biggest dangers for quant fund returns, says Robert Litterman, co-founder of Kepos Capital – lessons he learned at Goldman Sachs, when the quant sector suffered a meltdown

Robert Litterman: size, crowding and equity risk are bad for quant funds

In the summer of July 2007, quantitative funds – the kind that rely more on models than human judgement – were concerned about liquidity drying up. Too many investors had made similar bets and therefore wanted to do the same things at the same time. To manage risk, many of the funds started shrinking their quantitative equity portfolios.

At the time, Goldman Sachs had a significant quant equity presence - two of its most successful funds, the Global Alpha fund and the Global Equity Opportunities

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