Asia’s Quantitative Investing Risk Capital Increases 50%

Over the past year, hedge funds have increased their allocation to Asian quantitative strategies. Dealers have reported up to 50% increase in risk capital allocation throughout the region as a result of the growing Japanese equity market.

Quantitative investing uses strategies such as statistical arbitrage or high-frequency trading. The technique involves the application of data analysis across a wide range of areas including equities, historic prices, earnings and analyst recommendations.

Anthony Byrne of Deutsche Bank explains that the increase in risk capital in Asia comes primarily from US and European hedge funds.

“We have seen a strong pick-up in the amount of risk allocation to quantitative investing from hedge funds in the long/short format over the last 12 months. More than 50% of risk capital allocated to the region within our prime brokerage is quantitative in some form or another. Of that, over half comes from hedge funds that are household names with in excess of $10 billion in assets under management,” he said.

The head of quantitative strategy at a European bank in Hong Kong added, “When you have more volume, more market activity, dispersion and different types of investor classes you have a second order effect which is positive in relation to the quantitative investor who can look across a vast range of factors and take advantage of where they see pricing differences.”