quantPORT: First Look at Jefferies Quant Spinout

“Do or do not. There is no try.” – Yoda

 

Today, a post by efinancialcareers was first to report – followed by Bloomberg News – that Jefferies Group would be spinning out the quantPORT division of its Jefferies Investment Advisors (JIA) subsidiary. According to these sources – and regulatory filings – quantPORT (branded as such in 2018) began as a proprietary systematic equity trading team within Jefferies in 2006. As of January 2020, quantPORT claimed regulatory AUM of $3.7 billion. quantPORT’s website lists $5 billion as a milestone in 2017.

The bet? Better fundraising on the outside; better incentives (and more risks) for the guys behind the wheel…

Now, given that Alphacution knows the key players in the story here, it’s been on our radar to dig the stat arb data out of the Jefco filings for a long time, if possible. Today’s news provided a catalyst to do just that…

A few disclaimers before we get to a couple early samples of chart candy: As an “other reporting manager,” JIA’s 13F positions are embedded within the filings for the larger Jefferies. We don’t know what portion of JIA’s positions are attributable to quantPORT. Furthermore, positions attributable to JIA are embedded within the larger Jefferies filings in two ways that Alphacution is interpreting for the time being as “sole discretion” and “shared discretion.” Setting up our model in this way helps make the charts easier to interpret. We still don’t know for sure which of the “sole” or “shared” positions under JIA are attributable to quantPORT. If I had to guess right now, I’d say most…

JIA’s positions show up in Jefco’s 13F filings for the 40 quarters beginning Q1 2010 and ending Q4 2019. Q1 2020 is due any day, so it will be fascinating to see if and how these figures shift. Anyway, in the chart below, Alphacution has assembled the total 13F position counts by discretion category with an overlay of total 13F positions disclose for all of Jefferies.

With few exceptions, JIA position have been steadily increasing over the sample period, with the past couple years hovering around 1,500. The difference – about 1,000 positions – belongs to the rest of Jefco. As a reminder, these are the long side positions. There is a roughly matching short side.

 

When we toggle to the value of the holdings, things become a bit more interesting – even based on a cursory analysis and the assumption that JIA and quantport are roughly equivalent:

As expected, this is mostly a stock book with a few ETFs for the first half of the ride that we can see. At the 50-yard line (Q1 2015) there is a dramatic shift with the addition of options – both stock and ETF options – with the ETF options weighted mainly to the put side. (No surprise there.) The gross notional (long) market values of late correspond roughly with disclosed figures above…

Certainly, a deeper workup on the data would yield more insight, but at first pass, if quantPORT has figured out how to work options into a high-turnover, market-neutral, stat arb style strategy (perhaps leaning on a few extra ETF puts for ballast along the way) it’s a good sign for the future… That piece could fuel additional capacity, which is not the low-hanging fruit it used to be. And, given the work Alphacution has already done on the legendary players in the space – RenTech, D.E. Shaw, Two Sigma, Millennium / WorldQuant, BAM and others – we are due to eventually put that all together into a deep-dive case study. We will add quantPORT to that list, and make sure to check in to see how Stevie is doing with Cubist…

One more thing:  Vlad Portnoy, essentially the head quant, is the only name associated with these stories so far. There are other heavyweights behind the wheel here. Some old friends who like to keep things quiet. (Good luck with that.) To them: All the best…

Until next time…


Support the Feed!

Alphacution is gearing up to put more value into its basic individual subscription, including exclusive content. To support the Feed in anticipation of these upgrades, click Subscribe below. For details on basic and premium subscription offerings, send inquiries to info@alphacution.com.


Individual Subscription Options



Note: Business credit cards and bank accounts can be used via our PayPal payment portal.


By | 2020-05-15T00:37:10+00:00 May 14th, 2020|Alphacution Feed|

About the Author:

Paul Rowady is the Director of Research for Alphacution Research Conservatory, a research and strategic advisory platform uniquely focused on modeling and benchmarking the impacts of technology on global financial markets and the businesses of trading, asset management and banking. He is a 30-year veteran of the proprietary, quantitative and derivatives trading arenas. Contact: feedback@alphacution.com; Follow: @alphacution.