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How this new hedge fund led by a former WorldQuant and Jefferies executive is uncovering new datasets to avoid the pain that hit quants in 2020

Published by Business Insider on Mon, 11 Jan 2021


<p><img src="https://static1.businessinsider.com/image/5de57a1cfd9db2771d15a923-1200/wall street 2030 4x3.png" border="0" alt="wealth management and tech wall street 2030 4x3" data-mce-source="Samantha Lee/Business Insider"></p><p></p><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><p>Every financial institution in the world is constantly searching for <a href="https://www.businessinsider.com/alt-data-pitch-their-firm-point72-bridgewater-barclays-2020-8">new, unique datasets</a> that can give them an edge. A new peer coming in May plans to find them and put them to use at record speed.</p><p>Red Cedar, a new Stamford, Conn.-based quant fund set to launch in May, is run by CEO Alexander Chernyy, a Russian-born academic who has worked as a quant at Jefferies, WorldQuant, and DE Shaw, and Christopher Dean, the new fund's president who worked with Chernyy at Jefferies and helped start the bank's proprietary trading desk. It is being backed by hedge-fund-seeder New Holland Capital.</p><p>While Red Ceder declined to disclose how much New Holland Capital had invested, sources tell Insider that its investment will let the new fund run a portfolio worth at least $1 billion. However, it is unclear how much leverage is being used in the portfolio.</p><p>Chernyy and Dean told Insider they believe their fund can perform in any market condition thanks to their aggressive hedging of common factors that nearly investor uses as well 70 proprietary factors. Chernyy said the portfolio the pair ran at Jefferies avoided a large drawdown in March of last year when many quants were slammed by the impact of the pandemic.</p><p>"Much of the drawdown was avoided but the bounce was retained," Dean said.&nbsp;</p><p>Quants struggle to recover from the <a href="https://www.businessinsider.com/quant-hedge-funds-are-getting-slammed-thanks-to-coronavirus-volatility-2020-3">tough first quarter</a>, with managers like Bridgewater, Renaissance Technologies, and Winton Group losing money for the year. Credit Suisse <a href="https://www.businessinsider.com/credit-suisse-quant-fund-qt-closes-after-tough-stretch-quants-2020-5">shut down</a> its more-than-$500-million QT fund, and Coatue returned <a href="https://www.businessinsider.com/coatue-quant-fund-philippe-laffont-performance-data-science-2020-11">outside capital in its quant strategy</a>.</p><p>Meanwhile, the big winners of last year in the hedge fund space were <a href="https://www.businessinsider.com/under-the-radar-hedge-funds-crushed-2020-performance-2021-1">concentrated, human-run funds</a>, like Dan Sundheim's D1 Capital and Bill Ackman's Pershing Square.</p><p><em><strong>See more: <a href="https://www.businessinsider.com/coatue-quant-fund-philippe-laffont-performance-data-science-2020-11">Inside the rapid rise and fall of Coatue's quant fund: How a 23-year-old Wharton wunderkind seized power, alienated employees, and blew a $350 million opportunity</a><br></strong></em></p><p>The goal of Red Cedar consistently on the cutting edge thanks to new datasets.&nbsp;</p><p>"We are concentrating on alternative and new datasets with an emphasis on new," Chernyy said.</p><p>The manager is working ExodusPoint's <a href="https://www.businessinsider.com/exoduspoints-databuyer-chris-petrescu-left-the-hedge-fund-last-week-2019-10">former data buyer</a> Chris Petrescu's new company CP Capital to source new datasets that are not already in use by other players in the space.&nbsp;</p><p>The firm plans to research and test 50 datasets by year-end and hopes to use 35 of the datasets producing alpha in their portfolio by 2022's startwith the near-term goal of having both datasets in the portfolio and assets double every year.</p><p>When asked about a possible cap for assets, Chernyy said "infinity."&nbsp;</p><p>Chernyy, who came to the States to work DE Shaw, ran WorldQuant's Moscow and St. Petersburg teams of roughly 35 people when he worked Igor Tulchinsky, and his new fund plans to tap into talent in his home country. Red Cedar is planning to open a Moscow office by mid-February with possible expansions to St. Petersburg, Ukraine, and former Soviet Union countries.&nbsp;</p><p><em><strong>Read more: <a href="https://www.businessinsider.com/top-quants-hedge-fund-managers-quantitative-investing-2020-7">POWER PLAYERS: Meet the 24 quants driving the future of hedge funds, from well-known billionaire founders to under-the-radar data chiefs</a></strong></em></p><p>Chernyy said the goal is to have "anything that can be outsourced should be outsourced," including research, though he will lead the research efforts from Stamford, Conn.&nbsp;</p><p>"We want to take advantage" of the cheaper labor and untapped potential in these countries, he said.&nbsp;</p><p>The missions statement, Chernyy and Dean reiterated several times, is to not take the easy trades and focus on building a portfolio that can't be found anywhere else.</p><p>"We don't take the easy way," Chernyy said.&nbsp;</p><p><strong>SEE ALSO:&nbsp;<a href="https://www.businessinsider.com/peter-zhou-coatue-rising-star-launching-hedge-fund-2020-11" >A rising star from billionaire Philippe Laffont's Coatue is starting his own hedge fund and has at least $300 million lined up from investors</a></strong></p><p><strong>READ MORE:&nbsp;<a href="https://www.businessinsider.com/under-the-radar-hedge-funds-crushed-2020-performance-2021-1" >Here are under-the-radar hedge fund managers who crushed 2020, including a new launch from a former Viking Global portfolio manager and a comeback from a one-time Goldman partner</a></strong></p><p><strong>DON'T MISS:&nbsp;<a href="https://www.businessinsider.com/coatue-quant-fund-philippe-laffont-performance-data-science-2020-11" >Inside the rapid rise and fall of Coatue's quant fund: How a 23-year-old Wharton wunderkind seized power, alienated employees, and blew a $350 million opportunity</a></strong></p><p><a href="https://www.businessinsider.com/red-cedar-new-quant-hedge-fund-alexander-chernyy-alternative-data-2021-1#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="https://www.businessinsider.com/what-its-like-travel-during-coronavirus-outbreak-planes-airports-virus-2020-3">Here's what it's like to travel during the coronavirus outbreak</a></p>
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