the amount of assets in quant have doubled since 2009. the largest hedge fund companies in the world employ their strategies. even retail money managers like blackrock and state street have been using more technology for their products. that just adds to the competitive pressure for a firm like man. to get ahead, they've been focused on the new frontier of quant, machine learning. the firm's chief investment officer says with machine learning, the computers don't have to be told how or what to trade. they do it of themselves. >> a good example might be if you want machines to buy on dips, then it's sometimes quite hard to describe a dip perfectly, but the machine learning will look for patterns of what dips look like and what happened next after a dip. it will be much less where we set the strategy for it, much more that it learns from the data that you present. >> reporter: he says the use of machine learning has helped deliver returns above and beyond that of traditional quant. the firm has been employing the strategy for three years no

quant is a big word. we trade markets around the world. the medium term time horizon. it decays on a 9 to 18 month type of time horizon evolution, adaptation keeps refreshing algorithms and they last for years. >> mostly statistical overturns. >> you're not taking long views about companies and where they are. >> price volume is at the core but i think these days traditional reversion which is at the core of quant models is there. you have fundamental analysis, quantitative analysis >> so when we talk about a quant manager, are we talking about somebody with a background in computer science, rocket science, physics i don't know. >> we have a variety of different backgrounds in our managers computer scientists, physics, mathematicians, statisticians, bioengineers, chemical engineers. so you run the whole gamut of people who understand how to handle large amounts of data and make sense of that data. >> right probably don't even know gm makes cars thank you so much for joining be us. >> thank you >> thank you, michael. >>> when we come back,

a greatpet project, thing a lot of quants do. people competing and you know all of them saying, looking for a job. is inerent quant charlottesville, and that one is having 50% returns this year. they sent many mill saying, do you want to team up on this netflix competition. they got along really well and ended up convincing him to start his own hedge fund. carbon tax. we tried in europe but he came up with something else. dani burger. thank you. up next, we will hear from michael milken and why he sees a huge opportunity in that digital disruption of the financial industry. from new york, this is bloomberg. ♪ julia: what'd you miss? the golden age of private equity. of the what a pioneer junk-bond market told us this morning in singapore. she asked about the future of the banking industry. of banking andk financial institutions, you are talking about to the consumer an individual one billion people on the planet are going to want to -- going to one of facebook's websites every day. amazon, alibaba and so on have millions of custo

a good friend of mine from university lives here kiersten quant grew up in the former communist east germany and has spent most of her life interesting she says the a.f.d. has been able to tap into democratic sentiments that have deep roots in eastern germany. but really just get a new car the kaiser's and then naturally there's been a strong nationalistic shift especially in rural areas to the point where a far right ideology has been making a comeback is why do i believe it still existed under the radar in communist east germany. it was swept under the carpet and never dealt with because it was glossed over by ideology. to the outside world people presented themselves and socialist anti fascist dandy racist and so on but in people's heads for some people back then they never really made that mental switch. they just suppressed what was bubbling underneath the surface when you now it's coming back up to the surface again bill. carrington also teaches and takes me along to her art class nearby. for a spirited debate erupts as soon as someone mentions the a.f.d. home empty it up why d

after their assets are in quant which historically has been in a black box. this is man's attempt to explain the small subset of data that the computers are sifting through day in and day out now, this is something that they have used to explain the process to lps it doesn't explain whether technology doesn't provide the edge that it does in the rest of the world. if you look at returns over the one-year, three-year, and five-year time horizon, they tend to overperform the broader industry why what it built up $1 trillion in assets? it tends to provide more stability in the long run as well as downside protection. and we spoke with the ceo yesterday who told us it's the humans who provide that big outsize returns where is it's the computers that produce smaller amounts of alpha but greater differs fictiversificat. >> humans are really good at getting a big edge on trades but not very many. the reality is we have one or two good ideas and that tends to affect a number of things. humans are good at the big edge but not at the number of trades. >> reporter: now,

one of the benefits of quant, a selling point, there's a much more transparent process when it comes to returns than, say, traditional fundamental hedge funds which, of course, don't have a by the minute tabulation of those sorts of profit and losses >> it looks like a little bit of a gimmick to wow -- >> it would be really transparent if they told how they were doing the trades. >> leslie, we spoke earlier about some of the risks that the cio is aware of in terms of the threats to algo trading. one of them being leverage what about momentum? clearly we are late stage of what's been a very long bull market many people, many critics of robotic trading, et cetera, quant trading say it can only work during an up trend or down trend but can't pick when it's going to change direction. >> reporter: exactly that's one thing they're hoping machine learning will be able to solve, when the exact turn will happen as of right now, the science makes it very difficult to actually predict a downturn, as you mentioned in momentum, of course, is a huge issue that took place in 2007 when there was a s

group, which has been in quant for 30 years they've cultivated $40 billion in that strategy, and yetmost sophisticated lps see this as a black box. the purpose of this screen is just to show a small subset of data that the computers are sifting through and trading by the millisecond. you can see the diversity of markets they're in futures as well as electronic slippage, which shows the cost they're incurring on trading i want to take you guys on to the trading floor. i use that term loosely because a lot of people behind me aren't actually doing trading they're doing coding, creating these algorithms and back testing them and letting the computers do the rest. this is a strategy that's become very much invog vogue lately. that's created a concern among some industry experts that this could be the cause of the next financial crisis due to quant fund's excessive leverage and side in the markets they participate in but a lot of the people we spoke with here say we're going to see a repeat of what happened in 2007 with the unwinding of several quant funds that brought down a lot of other

morning of june 19, 1922, more than 5000 marines at marine cap -- marine camp quant marched onto waiting barges supplied by the u.s. navy and at war :00 a.m. those -- at 4:00 a.m. those barges were towed up the river to washington dc. tanks and artillery pieces towed by trucks rolled out along the richmond road. the march involved the entire fifth and sixth regiments, a squadron of the first marine air wing, and elements of the 10th marine artillery. baltimore sun" noted these marines were ready for anything. the 5000 men are caring the equipment of a complete division of nearly 20,000. the machine gun outfits especially, the personnel is skeletal eyes to buy the materials complete. companies of 88 men are carrying gear for companies of about 140. here's a shot of the encampment at washington, d.c. is a list of some of the things they were taking along on the march. as extensive as this list is, it still does not include the 30 airplanes and four tanks that were part of the maneuvers. they were taking both livestock like mules and horses to ride on, but also more modern equipment like th

other vanguard etf's -- mutual funds that are active, the fact that they are run by their quant groupything then card does is a big deal. they usually get a lot of assets when they launchpad. -- when they launch products. julie: how much of a game changer could this be? how much market share of the going to pull? eric: the act with specially active equity etf quality -- it has 5 billion, nobody cares about it. then guard is entering this category. etf israge active equity 85 basis points. vanguard, these products will probably come in at 25 basis point. vanguard has come in, under cut costs and cleaned up. will they be able to do it in this category with such a specific theme as momentum and value? something a little more factor based. julie: not just a matter of taking the market share it is creating the demand. how active are these funds going to be versus others on the market? eric: vanguard smart data products, not that active. we're talking about 75% market share versus the broader benchmark. quite as active as a true quantitative investor but more active for vanguard standards.

, they're sifting through research, creating ail go rhythms that do the trading this is known as a quanttrategy, which has historically been a black box here at mann group they have a lovely screen that visualizes what the computers are doing these days, when you think of a hedge fund, this may be what you need to be thinking about. it has seen quite the resurgence recently it's doubled assets since 2009 last year they saw inflows when others saw outflows. the five largest hedge funds in the world are quaunt strategies. the surge in popularity created some concerns that we could see another quaunt quake that's what happened in 2007 when some of the big quaunt funds unwound and caused a demise within the industry we spoke yesterday with mann group's cio who says he doesn't see one of these around the corner but he did list out specific dangers to quaunt strategies which are different to discretionary >> quaunt manager have in the past sometimes used too much leverage they're often good at risk management and use too much leverage that's something i worry about a lot. they can become too b

the thing about the scandal, in a lot of ways it's quant. >> like a normal scandal. >> yeah, a tale as old as time. high-ranking government official indulging in personal luxuries on the taxpayer dime. that's a very classic political scandal. trump's base has railed a against forever. do you remember, i was thinking about this, remember when every time the obama's took a vacation, there was like a huge uproar in the conservative media about how much money is being spent on security and travel and i mean, at least in that case there was ideological consistency there. partisanship and obama bashing and conservatives who don't like the government spending taxpayer money on stuff. it's a very -- this scandal tom price and the other administration officials you went through, it's a very easy to understand and it's something that the average trump voter is going to look at and be like yeah, that's ridiculous. i would never fly a private plane. why does this guy get to do it at my expense? >> plus, the other thing -- i want to give a special shoutout to scott pruit. he's not in the cross hair

one of them is chris harvey who runs quant equity strategies he says with markets at record highs you still have stocks and bonds looking like they're overvalued in those situations look for quality factors in stocks things that will hold up better in times of downturns. so things in terms of the quality of stocks in there that have strong balance sheets, low leverage, things like that better return on equity. profit margins increasing. there's an etf that tracks this. it's the ishares msci quality driven etf this is a factor-based etf that invests in large and mid cap stocks in the u.s. that have those quality factors. it's identical the performance so far in times of downturn this year, that high quality stock held up better also look at the overall picture for when these things could be a risk scott clemens says look for the corporate profit picture if those things start to turn that could be a bad sign also check out what's happening with investment sentiment. because those investor sentiment numbers could be contrary indicators, when people get too bullish it may be a signal thin