Technology key to fund-of-fund complexity

Commerzbank uses supercomputers

By Wouter Klijn
Fri 10 Oct 2008

Technology is the answer to the increasing complexity of the fund-of-hedge fund industry.

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The complexity of the fund-of-hedge fund industry can be addressed by making use of computer models that analyse fund managers' transactions.

The traditional model of selecting hedge funds, where they are picked based on how they are labelled by the market, is no longer appropriate, Commerzbank Alternative Investment Strategies (Comas) head of marketing Guy Medcraft said.

"We are interested in the way managers are trading on a day-to-day basis, not in how they are classified [by the market]," he said, at the Australian Structured Products Forum 2008 yesterday.

The global hedge fund industry is estimated at US$1.9 trillion and is still growing, which increases the complex nature of an already shy industry.

To counter this issue, Comas has built a system that analyses data about hedge fund managers' transactions, and compares these with the economic circumstances at the time.

It takes two supercomputers, which are located at universities in the UK, to process all the data.

"What we are trying to do is to capture the individual DNA of a trader, and see how he is making money. This DNA modelling allows us to classify single managers the way we want to classify them, as Commerzbank, not as the market tells us." Medcraft said.

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