The Hedgefunds: Licensing algorithms to hedgefunds Part 1

Have you ever considered licensing your algorithms to hedgefunds? It could be a good way to earn additional money, and in Laron's case learn how hedgefunds operate before he starts his own. In this episode Laron details how he came up with that idea, and how he reached out to hedgefunds with the proposal.

Podcast Transcript

 Hi everyone. I'm back. I've been quite busy in between the last podcast. In between that time I've went to Spain, published some research, filed patents on my research, and even have three hedge fund clients using my algorithms. So I'm back to document that process mostly about the algorithms and complete the journey of starting this quantitative hedge run from scratch.

Well, let's get into it. So for those new to the podcast, hi, welcome. I hope you're having fun. Uh, my plan is to start a quantitative hedge fund. To use it to then fund my research, my researchers around clean energy and chemical engineering stuff. So my whole plan is if I have this quantitative hedge fund, it can produce profits for me.

I use those profits and fund my research, and I could essentially research whatever I want. That's my grand idea, and I've put this plan into practice in a real way by using pro firm. For, for my algorithms over the last few years, but it hasn't been an easy road, honestly, with the platform companies turning out to be fraud scams and closing down without any notice.

I realize I can't continue to build my foundation on these terrible companies. So it's really forcing my hand to jump out of the kitty pool and actually go to the places where adults swim. So I need to be a little bit more professional now, and so I thought it would probably be a good. to learn about how hedge funds operate from the inside.

Before I dive headfirst into starting my own hedge fund. So to Wall Street, I go, I mean, I could read all the books I can about Michael Jordan, but it's not the same as actually playing basketball with him, right? So my idea is, , I would find some hedge fund guru who would sit me down, and correct all my mistakes because up to this point, everything I've been doing has been self-taught through trial and error.

But when it comes to me managing money for other people, , I can't really say, whoops, give me another try at it. You know, I need to be professional or rigorous. Also, I think, I mean, the bottom line is I don't know what I don't know. And I'm hoping that someone, uh, with a, you know, some professional can teach me what I should be doing.

And also I could gain some experience of how the professionals manage money and manage risk, uh, for other clients. So now I set my targets on infiltrating a hedge fund, but one doesn't. Enter a hedge fund, or one doesn't just knock on that door and gets access to the keys, to the kingdom. My thinking now is how do I want to approach the hedge funds?

What role do I want to serve? And essentially what will give me the most information, um, or access to information for somebody who's but. To start their own hedge fund. Um, ideally I don't wanna be an analyst, um, because the analysts I don't believe would be closest to the experience of, uh, operating a hedge fund.

I don't wanna be an intern because in the same way an intern would just be somebody who is, um, adjacent to people who are actually responsible for p and l and. The only ideas of me joining a hedge fund or the roles that make sense would be portfolio managers or even traders, um, within the hedge fund.

But those jobs, as you may know, is are quite competitive. And even tho to get into those jobs require a lot of experience. Um, and so you really have to figure. How do you want to get into a hedge fund and how do I want to, uh, play my role in that hedge fund? So one idea I had was if I were to be able to serve as a sub-advisor with a hedge fund, Um, essentially maybe I could work with a hedge fund and they can use my algorithms and I could be more fine-tuned or managed by their risk department.

And from that, uh, interaction and in those interactions, I can have more conversations with the risk managers and, and work closer with them, um, as I manage my algorithms for their, uh, accounts. So the deal was simple. I licensed my portfolio of algorithms to hedge. in turn, they pay me for my algorithm usage, probably a percentage of the profits.

And I get the experience of working with hedge funds. And I also get an opportunity to be mentored or taught, um, some additional information by the hedge fund managers, risk managers, or portfolio managers that would end up dealing with, that was my plan in my head that, you know, I, I took maybe two weeks to come up with that plan and simply the, the planning is the easiest part.

Trying to execute that plan which is. One of the things I've been doing in this entire podcast, trying to execute that plan is a lot more difficult. So like everything I do, I had to come up with a plan on how I was going to interact or get in contact with hedge fund managers that would allow me to do this.

Um, as with everything I do, it's an algorithm, it's a method, it's a a well thought out plan. So this is my plan that worked for me, and I'm going to tell you the exact secret as to how. Hedge fund clients again, with having no, uh, industry connections, no network, et cetera. So you might wanna take some notes.

Okay. If you are a professional in the financial industry and you're already cringing at the idea of random people online sending you emails, I'm sorry. And if you got one email from me, I'm also sorry, but what else am I supposed to do? So let's talk about some ways where you can get in contact with people in the industry and how I did it.

So my first idea was, let's narrow down our market space. We can't just say we want to work with hedge funds. and we want to provide, uh, licensed algorithms to hedge funds. That's pretty vague. And because it's so vague, you will end up going down a hole or rabbit hole where you may not even find the person you're looking for.

You have to really fi fine tune and refine that scope of the market to find the people you want. So here's how I did it. I said first I. Algorithms. So that's already a subset of the market. So people who are quantitative traders, traders or quantitative firms. And then secondly, I trade Forex or currency markets.

So are there hedge funds that use quantitative algorithms to trade the currency markets that already has shrunken, that down a lot. Um, and then secondly, I looked for people who were CTAs or commodity pool operators, CPOs. And in this, this, I. because I was more familiar with the terminologies used around those, um, hedge funds and uh, firms.

And so I wanted to look for those, uh, subsets. So essentially a CTA or CPO who traded the currency markets may be using algorithms were my target audience. And now the question. is, how do you find those people? Right? There's a large hedge fund database, and I would say that I did not pay for any database to find people because of the ways I went about doing it.

Um, the first thing I did was I wanted to find people who were already public facing. Meaning were people, meaning who were the people who were producing YouTube videos, uh, producing vlogs, producing podcasts? , uh, hedge fund trading or their hedge fund, for example. Uh, because the assumption is that these people may be more willing to listen to responses from people who've engaged with their content.

So obviously if you said, Hey, um, Hey Laron I listened to your podcast. I have a question about X, Y, Z. That might be more of an, a warm introduction to the person than a cold call or a cold email. Um, and it also shows that you've at least done your homework to see that this person has been a. , but more importantly, these people may leave their email address or their best way to get in contact with other people.

So that's the approach that I took. Now, let me tell you about, The channels that were the most, uh, lucrative for me. So first I went after people who paired on podcasts actually, because the assumption here is, uh, if you paired on a podcast, again, you're public facing, you're willing to talk to people. And again, on these podcasts, they.

Many interviewers asked people if they wanted someone to get in contact with them, what is the best way to do so? And these podcasts are very fruitful for finding contacts and the contacts for the people you might be interested in talking to. Um, that was their, um, As a person who listened to a lot of, uh, podcasts in this financial space, that was a very easy way to just create a database of those people who, uh, are of interest.

And I have an Excel sheet that literally I called people of interest and I have their contacts there from. , the podcast that I've been listening to. Secondly, uh, Twitter, Twitter's a very good way to get in contact with people from FinTwit However, this requires you to be very, uh, personable. It's just very annoying on Finit when people try to make tweets or posts just for engagement and they come off as very robotic.

Um, I would say that I don't reach out to too many people. on Twitter for the same reason. Uh, and mostly because when I tweet stuff, it's just, uh, random thoughts about algorithms. But, um, there are a lot of smart people on Twitter, um, in the financial space that I followed, uh, for this reason. And I would say that you can reach out to a lot of them right there.

I mean, if you're thinking about someone like, uh, Jerry Parker. You know, very famous Turtle Trader. You know, he's on Twitter a lot and he's tweeting a lot and he's responding to people a lot. And he has a, uh, Friday spaces that I attend from time to time, uh, talking about Trend following. And so if you were trying to, you know, reach these people, they are out there, they're publicly facing, and these are methods where you could find them and try to get in contact with them or just learn a little bit more from them and what their.

Publishing publicly. Another way I got in contact with a lot of people. Research papers. Um, so a lot of people publish white papers or full academic journals, um, within scientific publications. And on there, the, and with each paper that's published, a corresponding author is typically published as well. So their email address may be there of the person who is responsible for corresponding for anything about this paper.

So, if. Found a paper that you liked, which I have done quite some time. Uh, quite often you look for the corresponding author and say, Hey, I have some questions about this topic that you, uh, researched about and I wanted to get a little bit more information on it, if you can. And it's not harmful to send an email, especially if you're truly interested.

Um, I just would say obvious. No spam emails and things like that. It's just obviously not gonna be very effective if we're trying to have a conversation with people. But, um, corresponding authors on scientific papers, I mean, a lot of them are even published on ssrn, which you can search for free and download for free, I believe all of their papers there.

So that's another way I've been using to get in contact with people in the industry. . Another resource for contacting people is books. A lot of the authors are people who are willing to engage with their readers. Um, they're willing to have conversations about algorithms or the financial space. Um, and it's obviously important if the person who wrote the book has a firm that you're interested in participating in.

Um, and that may be a good opportunity. A warm introduction as somebody who is a fan of their work. So I've mostly emailed people who I've read and had questions about some of the things that they, uh, published in their books or just wanted some further clarification about some things. And I am not, uh, ashamed of emailing people if I have questions, and I think you shouldn't be either.

So, um, that's definitely another way to get in contact with people. . Another way to get in contact with people that I've used is conferences. So the hedge funds space has a lot of conferences, um, conferences for service providers, uh, hedge funds themselves, different type of hedge funds, and they are quite pricey.

I would say if you're not a, a member of, you know, their organization or association, they're going to be pricey. , they are going to be able to essentially put you in close proximity to a lot of people in the space that you want to be in. And I would say I, I went to three or four hedge fund conferences, but they were not in person.

This was around Covid time, you know, the pandemic. So a lot of them were virtual, but it was a good experience to. Um, see how they would've operated and also see the amount of participation in these conferences. I wouldn't expect that these conferences would have, uh, so many people at them, even virtually.

And, um, in this way, you can attend a conference and, for example, if one of the speakers is a hedge fund manager, . Um, you can easily follow up with that person after the conference and say, Hey, I liked your talk at this conference. I would like to talk a little bit more about X, Y, or Z, or whatever topic that that person may have talked about.

I would say that, um, You'd be surprised again, I mean, I was surprised. I'll just say this. I was surprised that a caliber of people who participate in these hedge one conferences at one conference there was Robert Carver who, uh, publishes a lot of books on algorithm mc trading and it has a very good blog on algorithm mc trading.

Um, Ernest Chan obviously. A lot of great books, many bestsellers in a, in algorithmic trading, and it becomes more interesting, especially if you are somebody who reads a lot of algorithmic trading information or blogs and consume a lot of podcasts. You'll find out that these people who are on the podcast are on podcasts, are also going to conferences, are also writing books, also having websites and blogs, and so you'd realize that.

World is a small place when it comes to algorithmic trading, especially people who publish content on algorithmic trading online. And as you get more familiar with the people, you can find them in a conference, uh, follow them on Twitter and maybe. Just maybe follow them on LinkedIn. Um, notice I did not talk about LinkedIn in my ways of reaching out to people because LinkedIn is just a terrible website.

It's my personal opinion. It's terrible, and I've never had a connection that started on LinkedIn. LinkedIn is typically a good place to stay in contact with people once you've already met them at a conference, for example, or met them someplace else. Maybe in person is a good place to stay in contact, but starting a relationship.

on LinkedIn is always very cringey. Um, and so I wouldn't suggest it as a place of contact, especially if you're trying to get into this space, space of, um, hedge fund because I can only assume that hedge fund people and personnel are inundated with cold emails from people like myself trying to get into the industry.

And so any way that you can cut through the noise will help you a lot. And I suppose having you a podcast. About algorithms is probably a plus. So just a few pointers for people who might be interested in reaching out to other people. I would just say be intentional. Know who you want to talk to and know what you want to talk to them about.

Be creative. You might have to spend some time and money trying to get in front of the right person, but it will be worth it. Be understanding. Remember, no one owes your I response. and put yourself in their shoes. They might be very stressed and busy at the time. And also, lastly, just be human. No spam email.

Be concise, be honest, and be a human. The human touch is much more different and better than some chat G P T generated email. Trust me.