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Coatue throttled back risk-taking in its $350 million quant fund after data-driven trades melted down

Philippe Laffont
  • At billionaire Philippe Laffont's Coatue Management, a new $350 million quant fund significantly reduced its exposure to the markets starting in early April, sources tell Business Insider.
  • The fund relies on real-time data feeds to inform its investment process, but the global shutdown that slammed many quant funds distorted the feeds. 
  • The fund is still active and trading, but not at the level it was before the pandemic hit, sources said.
  • It's another example of how reliant hedge funds are on outside data streams — and why some managers are exploring a quantamental approach that blends fundamental and quantitative investing styles. 
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Coatue Management's $350 million quant fund has significantly reduced its exposure to the markets since early April, when the coronavirus pandemic shut down the global economy, sources say.
The fund relies on real-time data to make its investing decisions, and sources familiar with the fund say Coatue was concerned the data during the pandemic would be skewed in a way that would confuse the investing program.
For example, one source said that the firm uses an e-commerce data set that showed a spike in visits to retailers' websites — normally a point for optimism for those companies. But such a dataset may not account for the fact that those stores' physical locations were closed to customers and that revenue is in freefall. 
The fund is still active and trading, though not nearly at the risk level it was before. One investor, who appreciated that Coatue acknowledged the possible dangers of misconstrued data, said their firm might look for another fund to take Coatue's place in their portfolio so their money can be put to work.
The firm, founded by billionaire Tiger Cub Philippe Laffont, declined to comment about the quant fund. Business Insider reported earlier this year that the new fund, which was started in 2019, lost money in the fourth quarter of last year, but the firm's data science team is well-regarded in the industry. Bloomberg reported in 2019 that the team had more than 30 people on it, with plans to expand.
Long-established quant funds were hit hard in March when the virus' impact was most acutely felt by markets. Names like Renaissance Technologies, Cubist, Schonfeld, and more lost double-digits in a matter of weeks. The pain was severe enough for at least one computer-run fund, Credit Suisse's QT Fund, to close.
Traditional data streams, like unemployment figures and earnings reports, were warped and delayed by the virus, putting alternative data back in the spotlight, after the nascent industry suffered from growing pains and regulatory backlash.
But Coatue's decision to reduce the fund's exposure to the markets highlights the pitfalls of relying on data alone — and why more funds are exploring quantamental approaches, which blend human and computer investing strategies, than ever before.
"I think having the fundamental overlay — we call them the gatekeepers — is really important to what we do," Strategic Global Advisors' president Brett Gallagher told Business Insider last month.
"Even moreso in this time of craziness where there are a lot of things that may make the quantitative model look a little bit wonky on certain aspects. We have the analysts there who can scoot out the issues."
Read more: Credit Suisse just shut down its $519 million computer-run QT Fund after a month from hell for quants
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SEE ALSO: Worse than the 2007 'Quant Quake': Huge quant names like Schonfeld and Bridgewater are getting slammed as market chaos blows up computer-driven trades
SEE ALSO: The world's biggest hedge funds like Bridgewater are blending quantitative and fundamental trading. Here's why it's gaining hype on Wall Street.
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