Maverick Capital, a $10.5 billion hedge fund, told clients it might have 'cracked the code'

  • Maverick Capital started testing a quant strategy in two funds two years ago.
  • Starting next year, investors will be able to give the firm money to invest in these funds.
  • Maverick’s move drew attention because it’s known for running a fundamental, stock picking approach.
  • In a client letter, founder Lee Ainslie says the effort has shown promise. The two funds have gained in the double digits — 16.9% and 22.1% this year through August — according to separate marketing documents seen by Business Insider.

NEW YORK — Lee Ainslie’s Maverick Capital may have cracked the code on quant.

Maverick recently held its investor day in New York, where it announced it would debut two quant funds that it had been running in-house to external capital. The announcement drew attention because Maverick is known for deploying a fundamental, stock picking approach.

The firm’s quantitative research effort started a decade ago, and it hasn’t been easy, Ainslie said in an October 20 client letter seen by Business Insider. About two years ago, Maverick started looking into whether the alternative data sets that it had researched could help its fundamental investing process, and launched two funds internally to test it out.

“Our hope was that the data science, statistical and coding expertise and skills that we had developed over the years … would enable Maverick to be more successful than the many fundamentally-oriented hedge funds that have found such efforts unproductive,” Ainslie wrote.

“We quickly discovered why such research has proven so frustrating to many,” he added. “Eventually we discovered some very- short-term alpha signals, which were not highly relevant to our long-term strategically-oriented fundamental efforts but were well suited for higher frequency systematic trading.
But things have turned up recently (emphasis added):

“Through combining inputs from various data sets over the last few months, we believe we have begun to improve dramatically our ability to forecast revenues, cash flow and earnings of hundreds of companies across several sectors, and the number of industries and businesses for which we are developing such capabilities are both growing rapidly. Both in terms of idea generation and business monitoring, such insights should prove invaluable to our core, fundamental effort, and I believe that few, if any bottom-up investors have cracked the code.
Earlier this year, Maverick included a higher-frequency trading strategy in its two quant funds, which it said has boosted returns. Broadly, Maverick has been using what it called the Maverick Quantitative Model, which drives a tool that recommends position sizes and its sector screens, which flags investment positions for the Maverick team. The combo of these two strategies “has proven powerful” and shown up in the returns, Ainslie wrote.

According to market documents reviewed by Business Insider, the Maverick Fundamental Quantitative Fund has gained 16.9% through August of this year, while the MFQ Neutral Fund has gained 22.1%. The figures are after estimated fees, the documents said.

The first fund targets a 40% net exposure while the second fund targets a 0% net exposure, the letter said.

More broadly, the firm has underperformed in 2017, and has lost about -2% this year, according to people familiar.

A Maverick spokesman declined to comment.

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