The phrase “hedge fund” usually conjures up images of the elite Manhattan firms governed by stock pickers such as John Paulson or Paul Singer who can boast of a lengthy career in finance.
But one well known investor, Point72 Asset Management’s Steven Cohen, is placing his bet on a “crowd-sourced” hedge fund, Quantopian, the latter announced early Wednesday.
The Boston-based firm has 85,000 “members,” who create and test algorithms on its website. Algorithm creators can earn money based on the returns their investment strategies receives. The five-year-old startup touts users that are students, finance professionals, and scientists coming from 180 countries.
Through his venture capital arm, Point72 Ventures, Cohen is handing up to $250 million over to the platform to invest using these algorithms. A portion of those funds are contingent on Quantopian meeting certain performance benchmarks.
Meaning theoretically, an unknown nuclear engineer in Nebraska might be indirectly managing a share of Cohen’s money through his or her algorithm in the near future—that of course is the best case scenario.
For Point72, it’s a new way of of finding talent in the still relatively untested world of quantitative investing—a style that relies largely on numbers and statistical modeling but dominated the list of top earning hedge funders of 2016, according to Institutional Investor’s Alpha.
“The scarce resource in quantitative investing is talent,” said Matthew Granade, the leader of Point72 Ventures, which is seeded by Cohen and his employees. “Quantopian has demonstrated an innovative approach to finding that talent.”
For Quantopian, the investment is not only a vote of confidence for the firm, but it also means larger rewards for algorithm creators.
“These funds will permit Quantopian to make larger allocations and therefore pay larger royalties to authors of profitable algorithms,” said John Fawcett, CEO of Quantopian in a statement. That could incentivize users to be even more creative and prolific with their algorithms.
Additionally, Cohen’s firm will also be giving Quantopian strategic advice.
The relationship between Cohen and Quantopian also echoes the one forming between Wall Street banking giants and their smaller, though more tech-savvy competitors. Increasingly, banks such as Citigroup, J.P. Morgan Chase, and Goldman Sachs are investing in or partnering with fintechs, in order to learn from their handle over technology and come in line with consumer demand.