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Beyond the 'Battle of the Quants': The Art of Big Data

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In the last dozen years there have been many discoveries on evolution: blond hair came into existence around 20,000 years ago, the spoken language in 15,000 BCE, written language about 6,000 years ago. And just this week, scientists analyzing the DNA record of people in Europe announced that the lighter skin color of Europeans evolved less than 5,000 years ago.

Looking back at the last millennia, not much happened in the way of development from 1400 until the middle of the 19th century. The human population remained relatively flat with little advancement in the way of technology. But then the human Cambrian explosion took form during the Industrial Age and the mechanization of farming.

Today, we are living in a very special time. A new Renaissance era of how computers, technology and data, which is the new currency (sorry, Bitcoin), will transform our lives and the way we work, live and consume.

Efficiency drives the trends of mobile enterprise, big data analytics, and the Internet of Things, from sensors to wearable devices. It's all about more computing power, the velocity of data and insights, and real-time transparency.

Out of that tech paradigm shift, the Battle of the Quants was born a decade ago. The brainchild of Bartt C. Kellermann, a former IBM executive, trader and capital raiser for his hedge fund consulting company Global Capital Acquisition, he set out to get the financial industry's brightest and most competitive quantitative analysis pros and put them together for the Battle of the Quants Conference.

In its eighth year, the Battle of the Quants will hold three conferences this year. The first will be in New York on March 25-26, the next in Shanghai in June, and then London in September. In the world of speed trading, trading liquid macro funds, quantitative trading are "trading strategies based on quantitative analysis, which rely on mathematical computations and number crunching to identify trading opportunities," according to Investopedia.

In other words, Bartt Kellermann's IBM background is both ideal and perhaps the impetus for pitting the old school or pure mathematics investors versus the new school of using "machine driven" big data models for investment strategies.

The Art of Big Data
Sitting in his midtown office, the personable, even charming Mr. Kellermann shared his passion not only for the analytics and modeling of data, but his sweet spot for Impressionism and post-Impressionist art.

Without missing a beat during the interview, Bartt Kellermann discussed his monthly, UBS-sponsored Open House at the Museum of Modern Art (MOMA). He told me that he leads his clients and friends though the bARTt Tour.

"I am is not a Docent. Instead, I've honed my knowledge of the Impressionists through self-teaching," he said. And that gives his own take on the top artists sharing his knowledge of the artist more interesting side, including the paintings with unique characteristics and how a particular painting reflects the characteristics of the artist.

He said:

The tour often starts off with a handful of people and quickly grows to large groups hoping to catch more depth on some of the most famous artworks in the world. The bARTt Tour takes place on demand only and according to Bartt it's different every time. It typically includes Cezanne, Van Gogh, Picasso, Andrew Wyeth, Pollack, Dali, Jasper Johns and Rothko."

According to him, he also "loves doing it, as it is a great escape from quantitative finance."

2014-03-14-BattleoftheQuantsShanghaiProPictures344.jpg
[Bartt Kellermann (r). Credit: Global Capital Acquisition.]

Recently, Bartt Kellermann and the quants have come to the realization that the "machines have won over the pure analytical traders. This year the conference will be about 'Beyond the Battle of the Quants,'" he said.

Over the years, I have held the Battle of the Quants Conference in New York, London, Hong Kong, Singapore, Tokyo and Shanghai. Shanghai has been incredibly popular. The Chinese traders and investors really grasp the power of analytics.

Anomalies and Sentiment Analysis
At last year's Battle of the Quants conference in New York City, held at the Museum of Mathematics (MoMath), Sentiment Analysis was a hot topic. Businesses across many industries "have been trying to crack sentiment analysis and social reach metrics for years, but how close are they to turning social analytics?" Kellermann asked.

Is the battle over quantitative analysis "humanizing the machine?" And if that's at the core the Battle of the Quants, then Kellermann as a data and math driven aficionado is onto something in using sentiment analysis to find value in markets.

"We have been using sentiment analysis for the past three years, as it gives a new insight, new layer in quantitative trading strategies," Bartt Kellermann said. "And anomalies are where predictability in markets is going."

At this year's conference, Intel Corporation is a sponsor. Naturally, the semiconductor leader is developing a new "vector processing chip that will deliver low latency," Kellermann said to speed trading.

Why are seconds in high-speed trading sliced into microseconds important?

Well, in cloud data centers, "low latency" is a critical feature and selling point for data centers companies. That's why many data center provides, from PEER 1 and Datagram, CoreSite and Internap have built cloud storage facilities in New York City, near the financial district and over in Secaucus, NJ.

When it comes to the speed of light trades, the shortest distance between two points with the fewest routers, switches and networks matters a lot and often is a competitive advantage in quantitative trading.

Human or Machine Traders
The Battle of the Quants has answered Bartt Kellermann's question: What makes a better trader, human or machine? Now the conference and its participants need to do is figure out how businesses can leverage the power of computing processing and big data analytics to become even more efficient, unearth more hidden anomalies, and use the proliferation of data end-points to their advantage.

If GE believes we are in the 'Age of Gas' with respect to energy, then technology has ushered in a new era where data is the new currency, efficiency is the new mantra, and analytics is the new toolset.

In the 'Age of Big Data,' Bartt Kellermann said:

The advancement and effectiveness of computers, mobility, and machines will help us on the road to success. At the beginning of the Battle of the Quants, I asked, "How do we get back to a winning strategy?"

That was especially true during the fixed income bubble of 2008. "The challenge then was flat returns, as they are today. Hedge funds either give institutional investors their six to eight percent returns on investments or they will go somewhere else."

With no more long-term trends, the shift in the financial markets has moved toward machine-learning, ultra faster computer power, and closing on the elusive third and final phase of business analytics in prescriptive analytics, where sentiment analysis will play a major role.

This year's Battle of the Quants will be fascinating to see where the "beyond" horizon will take the finance industry over the next few years. But for this author, equally interesting and of value will be what can other industries from insurance and healthcare, to logistics and manufacturing learn from the Quants.