To mark the 15th anniversary of WorldQuant, our Founder, Chairman and CEO reflects upon the changes he has seen and what the future holds for the firm.
This year marks the 15th anniversary of WorldQuant. When our firm was founded in 2007, there were no iPads; you couldn’t order an Uber to take you to dinner, and you couldn’t post photos of that dinner on Instagram. Bitcoin was still two years away, and Royal Bank of Scotland, with almost $4 trillion in assets under management, was the world’s largest financial institution.
I list these recollections because it is easy to lose track of the pace and scale of change. The world has undergone revolutionary transformations in the decade and a half that WorldQuant has been in existence. The next 15 years will see changes of similar or even greater magnitude.
This landmark anniversary for the firm is a moment to reflect on some of our achievements to date, achievements made possible by the WorldQuant team, and to outline the ways in which we will build on this foundation in the years to come.
Quantitative Goals and Divergent Thinking
If there is one lesson to come from WorldQuant’s first 15 years, it’s that limits can be broken. Since the firm’s inception, I’ve been struck by how swiftly many of the targets that seemed at the time extraordinarily ambitious were achieved and surpassed. What we believe to be possible or impossible is so often influenced by our attitudes and expectations about the way markets operate or the potential of data, rather than genuine insights.
From this observation, we can draw important conclusions. The first is that, where possible, targets should be tangible, ambitious and expressed quantitatively. We have embraced the value of thinking big. In a world of dizzying scale and complexity, we need to push beyond what is immediately visible and achievable to generate ideas that push boundaries in terms of quantity and quality.
The power of exponential thinking and ambitious goals is evident in reviewing prior aspirations, which at the time seemed close to impossible. For example, in 2010 we set ourselves the target of reaching a million alphas1 (the algorithms we use to build our strategies). At the time we were producing only several thousand a year. We hit that target in 2016 and now we have millions. When we launched in 2007 we had two data sets — today we have more than 1,400. These are only a few examples — but they demonstrate a broader theme: that at each step we surpass our goals and recalibrate to reach higher.2
The second lesson, closely tied to the first, is that we attempt to work without rigidity in our philosophies, and without preconditioned modes of thought. We believe in the UnRule: all theories and methods have flaws; philosophies are useful only to the extent that they are adaptable. This is linked to our championing of divergent, rather than convergent, thinking. It is now widely accepted that diversity of thought brings benefits to organizations. We have long recognized the equal distribution of global talent and sought to nurture and develop a workforce that is geographically distributed around the world in a manner that is unusual, if not unique, for our industry.
The launch of our BRAIN program this year is an example of our drive to source inputs from a truly global talent base. We set an initial target of engaging 1,000 BRAIN consultants to develop alphas, recognizing the benefits of engaging quantitative talent where it is located, at scale, and doing so in innovative structures that align opportunity with objectives. We currently have more than 700 BRAIN consultants on our simulation platform with access to over 65,000 data fields. In addition, we launched our inaugural Global Alphathon on the BRAIN platform, which is a quant competition where individuals can build alphas to compete for cash prizes, and where top-performing participants may be considered for full-time and/or internship opportunities at WorldQuant. The Global Alphathon had more than 14,000 individual registrants from 100-plus countries.
A Layered Approach
In a complex investment environment, we believe there is significant value in a clear process that also allows for quantitative exploration. Our business is a hierarchy of layers through which data has to pass in order to be transformed from its raw state to the desired outcome: investable strategies that seek to generate consistent, high-quality returns for investors. Moving through a codified process is a way of trying to ensure that every idea is rigorously tested and has to earn its progress through the system. We move from raw data, through enhanced data, through a series of human-generated and machine learning algorithms to reach the alpha stage. Ultimately, we create strategies using these alphas that are allocated capital by our allocation groups.
This is an organized process, which we also refer to as the Alpha Factory. This process is a guide for our constant pursuit of new ideas. Pairing this rigorous process with our avoidance of intellectual rigidity is the template by which we strive for continued success.
Our approach is increasingly a collaboration between powerful technologies and human intellect. We hire some of the best global talent we can find to manage the process, think creatively and guide technology. We believe that harnessing the full capabilities of our employees and our technology in this way will enable us to move faster into the future of quantitative research, and to continue along our growth path.
One of the ways we can usefully think about the evolution of both WorldQuant and the broader quantitative investment industry over the past decade and a half is in the context of exponential growth.3 An example of exponential growth is growth that doubles at a fixed rate.
Moore’s Law4 is perhaps the best-known expression of an exponential relationship. There are countless others in the world of technology. For example, since 2000 the global number of cellular phone contracts has doubled on average every two years (this is now slowing as the outstanding number of contracts, at 8.5 billion, exceeds the global population).5 There’s the global volume of data replicated worldwide, which since 2010 has doubled on average every three months.6 A recent IDC study predicted that this trend would continue and even accelerate over the coming years.7 There’s the explosion in high frequency trading, which has seen exponential growth in the number of daily futures contracts traded and the total global value of such contracts.8
We can find growth that approaches exponentiality within the firm as well. WorldQuant’s first 15 years of operation offer examples of the exponential function. There’s the number of alphas, for instance, and the processing power we use to identify these alphas.
Working in an environment of such dramatic change could be perceived as a challenge filled with obstacles and uncertainty, in which the goal is keeping up with managing exponentially growing data, processing it and creating beneficial outcomes from it all. Inside WorldQuant, we view change and evolution as a critical opportunity to generate more insights faster — consistent with our focus on ambitious targets, divergent thinking and our increasing deployment of proprietary technologies and AI.
The Talent Equation
Exponential growth in data and the advancement of technology require large pools of talent with the right skills, as well as the ability to be creative in exploring the insights quantitative analysis can provide. I do not believe that humans and computers are locked in a struggle that will see one side emerge triumphant. The increasing sophistication of technology has expanded the knowledge base of humans and has helped us use that knowledge in more productive ways.
We frequently reference our belief that talent is evenly distributed globally. This is one reason why we are a global organization. The approach to our global mandate is centered on bringing talent from around the world into an environment that maximizes the impact of many perspectives looking at large volumes of data to solve significant quantitative questions. We believe that BRAIN will extend our reach and enable us to draw on a network of talent to generate alphas — complementing our employees and offering a powerful model of what the future of systematic trading might look like.
While talent may be equally distributed globally, opportunity is not. This has been a fundamental premise of WorldQuant. This is also what sits behind WorldQuant University. I am proud that the WorldQuant name is also represented in a tuition fee-free online university with thousands of students from around the world. The principles we focus on at WorldQuant regarding talent, data and the future can also have a significant impact on areas outside of our firm. We want the opportunity to see exponential growth in areas where it has historically been constrained by issues of access or cost. I believe that WorldQuant University can continue to be a positive contributor to that future.
The Future Calls
I have been spending a lot of time recently thinking about the science and art of prediction. I have a book coming out next year co-written with my friend Christopher Mason, a professor of genomics at Weill Cornell Medicine, about how technology-enabled improvements in our ability to make predictions have altered the way we should think about risk.9 The ability to accurately predict future events is increasing at an extraordinary rate.
However, the complexity and sophistication of the systems and processes whose outcomes we are trying to predict are also increasing exponentially. You can either run to stand still in a world that is changing this fast, or you can view it as we do, as a challenge, prompting us to embrace change and exponential growth as engines of success.
Our vision of the future is one in which we harness the true power of algorithms. In the coming years, we believe that we will be able to scale exponentially the number of algorithms deployed across each layer of our business. To achieve this vision, the importance of our team can never be underestimated. WorldQuant will seek to recruit talent globally, both part-time and full-time. We expect that thousands of BRAIN consultants will be tapped to add value to our ecosystem, and that our technology will rapidly advance. This powerful combination of human intelligence across the globe and the latest technologies will strengthen WorldQuant’s unique approach to solving quantitative questions; we have every hope that it will assist us in delivering results.
Many of the longest-tenured quant firms remain the most successful — what they have learned during those years of operating becomes their most important asset. We believe our history enables us to do the same.10 We believe the data set of our many decisions and the learnings we have accrued over time across different market environments is increasingly valuable and cannot be replicated. We are striving to use this knowledge to continue driving WorldQuant into the future, drawing on the power of exponential growth in an effort to find even more insights — faster — and to maximize the totality of what we can achieve.