Splicing hedge funds to universities to funnel ‘brain power’

Today’s Financial Times has a follow-up story to the one we profiled in our About page when GlobalHigherEd was first set up last September. The story, ‘A fierce battle for brain power’, examines the intense competition between hedge fund firms for highly skilled workers with advanced degrees.

As the story notes, firms like Renaissance Technologies in Long Island New York are quantitative hothouses, loaded up as they are with PhDs in mathematics and theoretical physics: a veritable brain trust on a densely wired floorplate. Across the Atlantic, hedge funds such as AHL, Winton Capital, Aspect Capital and BlueCrest’s BlueTrend – all based in London – have sought to create a unique space for knowledge production; part university, part firm, part clubhouse. They’ve done this to create a conducive context for the highly sought after people who create and manage complex financial instruments. This is not surprising in many ways, but the FT story is also worth reading as it explains how hedge funds are now splicing their DNA to select higher education institutions where the best and brightest of these PhDs are trained up.

oxman.jpgThe splicing process is happening via the establishment of joint ventures with universities such as Oxford (the Oxford Man Institute for Quantitative Finance; the Nomura Centre for Mathematical Finance), and to a lesser degree via endowed chairs (e.g., the Winton Professor of the Public Understanding of Risk, Cambridge University).

From the perspective of firms the main logic of deepening linkages with select universities is to enhance their capacity to survey and then court high quality graduate students. Joint venture institutes, in particular, raise the “profile” of these hedge funds while simultaneously enabling them to acquire information about prospective employees. The insertion of parts of a hedge fund’s institutional infrastructure within a university, and the consequent blurring of institutional boundaries, places it three steps ahead of other hedge funds who have weaker ties with professors and contract researchers, and who typically advertise via word of mouth, recruitment fairs at universities, in the FT, or in relevant magazines like Chess Monthly.

Needless to say there are few universities that will turn down this type of arrangement given the prospects for the injection of external resources. Yet it is really only select universities that appear on this highly capitalized joint venture map. Prospective universities typically need to be within the orbit of global cities, the interdependent skein of the world-economy. And they obviously need to be universities that offer a high quality advanced education, while simultaneously providing appropriate social and cultural capital. And, of course, alumni dynamics often come into play. If such conditions exist the hedge funds move in in search of human resources, their lifeblood. As Tim Wong, head of the Man Group‘s AHL, puts it in the story: “People are the key…. That’s why we have done the Oxford institute, because we need the people for the future.”

Kris Olds

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8 thoughts on “Splicing hedge funds to universities to funnel ‘brain power’

  1. I believe time will show that the best eggheads at financial investing are simply lucky. Not financial geniuses. Now that there is no rising tide to raise all boats, you will see a lot of financial geniuses humbled. Will the common investor learn this time around? No.

  2. Reputation and scale can outweigh luck in markets where bulls and bears are actually few and far between and most are sheep.

  3. Good point well made. My point was that whether you call it luck or something else, I don’t see very much going on that I would refer to as clever, certainly not genius. We appear to be in agreement on that.

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