The legendary Moore Capital is closing. Its founder, Louis Bacon, is reported to be riding off into the sunset.
His name was often mentioned in the same breath as George Soros, Stan Druckenmiller and Paul Tudor Jones. Like them, over his three-decade career he helped build hedge funds’ reputation for placing big bets on big world events — profiting from predictions of war and economic meltdown. He has been described as one of the best foreign exchange traders ever. Bacon earned outsized returns from bets that stocks would plummet and oil would spike if Iraq invaded Kuwait and pulled the U.S. into war in the 1990s, which they did. He was managing $14 billion at his height, but his returns haven’t had the shine they used to.
It’s the latest in series of money manager giants taking their leave, including Leon Cooperman and Jeffrey Vinik. One imagines them joining Tom Cruise in the 2003 movie “The Last Samurai,” galloping at full tilt, swords drawn, representing the last vestige of their chivalrous time crashing against the mechanized future.
In the movie, the mechanized future was represented by Gatling guns mowing down the warriors of old. On Wall Street, it’s quants, their data operations and passive management versus active. Think Jim Simons of Renaissance Technologies taking all emotion out of investing, dismissing “stories” about a stock as distraction, and becoming known as one of the greatest investor of all time.
The truth of what’s going on is something different.
Overall, quants, passive investing and robots are not necessarily better than humans at investing. But because they already traffic in digital data to do their work, they can show investors what they’re doing, and they can cater to institutional investors who are pushing for highly customized strategies.
Think Neuberger Berman and their new client portals, or Millenium Management building a data infrastructure core to support, guide and manage human investing teams.
As Josh Wolfe of Lux Capital has said, investors are asking money managers whether they are lucky or smart. Having access to data that shows how the investing process works and whether it’s repeatable decides the answer.
That’s not to say Louis Bacon, Jeffrey Vinik and Leon Cooperman are not smart. Their track record clearly shows the opposite. Bacon flourished for 30 years, founding Moore Capital in 1989 with $25,000 he inherited from his mother. He made successful currency bets, calling global events right. He made those early investments that saw Saddam Hussein’s invasion of Kuwait coming. In the 1990s he bet the Japanese market would slump when others didn’t see it coming.
The mechanized future isn’t necessarily smarter than Louis Bacon. But the data operations of the funds rising to prominence in Moore Capital’s place likely have better organized information systems and are easier to analyze and track by investors. Maybe that’s boring.
The future is being able to show the data as the investing is being done. And for the market moving cavaliers of not long ago, that is a different environment, sitting cheek by jowl with data scientists and running statements through machine learning ingestion engines while knowing investors are looking over your shoulder. It is a new and different era in which chivalry is dead.
That’s not to say the new investing is boring. As chess masters will tell you, artificial intelligence and reducing chess to sortable data has led to rapidly accelerating innovation in the game, with new patterns of play at a higher rate.
The new way of providing more transparency faster may also result in a democratization of asset management. Family offices and other classes of investors may have had fewer choices in the past, and had to take a back seat to bigger institutional investors like pension funds. But if data can be shared more efficiently, they stand to get a clearer view into fund mechanics and make smarter decisions.
The retail investor experience typified by Charles Schwab and TD Ameritrade, as they now combine, works in the commodified environment of public markets. But that becomes more challenging at scale when dealing with sophisticated investment vehicles in highly tailored institutional investor portfolios. This has been difficult given the complexity and regulatory implications of delivering at scale, but it’s becoming less difficult.
It has been said that actively managed funds — and hedge funds in particular — are being hit by low interest rates and a lack of volatility that plays to their strengths. That’s likely true. The markets have been stacked against them and pushed more and more out of the game. But if an when volatility returns and debt gets more expensive, we shouldn’t be surprised if the samurai don’t rise again.
The recession ebbed, and shoppers did not return to brick and mortar stores. They were very happy to remain online with their shopping dashboard and put aside the romance of walking to shops ahead of Christmas. The user experience of Amazon has changed retail.
Similarly, as investors get cozy with new data portals and streaming details on fund activities, they may not be wooed back to the heroics of a passing investing world dominated by the heroic stock pickers with a track record.