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Total Posts: 125
Joined: Nov 2005
Posted: 2016-11-10 18:26

> Teza Technologies of Chicago plans to exit its proprietary trading business in the next six months to focus on building up a quantitative hedge fund that manages more than $1bn, company executives said.


Total Posts: 285
Joined: Jan 2015
Posted: 2016-11-11 05:05
Interesting. Prima facie I don't understand why they'd completely abandon prop. FTA, it's still clearing $80 mn/yr in revenue. Let's say even if you have to pare that back to $40 million to keep expenses contained at 50%, that's still $20 mn/yr in profit. Let's also say Misha just keeps it as a secondary business and hires some top talent to handle the day-to-day. That'd cost at most 60% in comp, Misha'd still clear $8 million a year from the operation.

In contrast a $1bn quant fund that puts up 10% ROI at 2/20 "only" brings in $40mn/yr in revenue. Even with modest expenses and comp, you're not clearing much more than two or three times the prop estimate. And that constitutes much more volatile cash flow.

Anyone have color on how Headlands and/or Radix are doing?

Good questions outrank easy answers. -Paul Samuelson


Total Posts: 5
Joined: Jun 2011
Posted: 2016-11-11 08:38
"The new tack comes after net revenues at the proprietary business, which bets Teza’s own money in markets from futures to bonds, steadily declined from about $250m four years ago to $80m in 2015, according to three people familiar with the figures. In 2016, the business has struggled to make a profit, the people added."

EL > Sounds much worse than your assumptions. If we assume breakeven after expenses and a bleak forecast after sustained YoY declines, it seems the HFT operation would just serve as a resource suck/distraction to what the firm may perceive as a growth business, the quant fund. So redirect all efforts onto the fund or new fund launches and hope to go from $1b AUM to $50b AUM.


Total Posts: 1006
Joined: May 2004
Posted: 2016-11-11 10:32
Call me cynical, but when alpha -> 0, 2/20 (quant HF) is better than 0/100 (prop).

"Earth: some bacteria and basic life forms, no sign of intelligent life" (Message from a type III civilization probe sent to the solar system circa 2016)


Total Posts: 378
Joined: Jul 2008
Posted: 2016-11-11 12:08
HFT has high fixed costs, they're not easy to reduce if you want to "scale down".


Total Posts: 451
Joined: Apr 2005
Posted: 2016-11-11 12:10
Wholly with EL - just put in a little corner. As long as profitable - reduces transactions costs, subsidies the infra.

Reason why not is if investors ask / don't believe why don't favor prop when have a new, high sharpe strategy - and while internally can do - difficult to make people all believe


Total Posts: 244
Joined: May 2006
Posted: 2016-11-11 14:54
I am with @mental on this one. It doesn't make sense at $ 1 bln, but it will make sense at $ 10 bln.

"People say nothing's impossible, but I do nothing every day" --Winnie The Pooh
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