In October, Renaissance Technologies suffered a nightmare, with its two public hedge funds abruptly losing about 15 per cent, before soaring back in November. Yet for a lot of other big quantitative investors, the autumn was mostly plain sailing. Why?
We don’t know how RenTech’s fabled employee-only Medallion fund has fared, but for its RIEF and RIDA vehicles — which collectively manage more than $20bn — October was among their worst months ever. Both funds rebounded by double digits last month, but are still heading for another poor year.
This has been a topsy-turvy year for many investors, but RenTech’s autumnal woes encapsulate how it has been an exceptionally turbulent year for quantitative ones. Hedge funds that rely on sophisticated modelling and systematic trading have been rattled by a series of mini-crises that insiders say have been mildly reminiscent of the violent “quant quake” that rattled the entire industry in August 2007.
To be clear, this has on the whole not been a bad year for most quants. It has just been riddled with an unusually large number of these mysterious, often unsettling, quant tremors. And to the bafflement of even many industry insiders, the impact has often been extremely varied, with some firms hardly noticing certain quivers but getting severely rattled by other ones.
The result has been an unusually large divergence in the performance of many quant strategies, according to industry executives. As Philippe Jordan, president of CFM, told Alphaville:
It’s not been of the magnitude of the 2007 quant quake, but it’s been like rolling thunder throughout the year. It’s rolled through different people at different times and in different ways.
Intriguingly, Alphaville has heard myriad possible explanations for why these tremors seem to have had such a disparate impact even on similar quant strategies, but no one seems to know for certain.
The obvious question is whether these idiosyncratic, brief quant tremors are just random or signify something big building up under the surface. So Alphaville thought it might be worth taking a look at the issue. We don’t have any good answers, unfortunately, but here’s what we found out.
From DeepSeekmageddon to MinVolpocalyse
While the exact nature of the 2025 quant tremors is somewhat opaque, the causes are mostly obvious and in several cases have also rattled traditional investors.
The first one came in January, when a Chinese company called DeepSeek unveiled an AI chatbot that was far cheaper to build and more efficient than many US rivals. This briefly hammered the shares of many US technology companies and fizzled certain systematic trading models in the process.
Some quant hedge funds — such as AQR’s long-short Delphi fund, RenTech’s RIDA and RIEF, and Capital Fund Management’s Stratus — enjoyed healthy returns in January, but others were hurt by the turbulence. The DeepSeek shock seemed to have started a particularly bad spell for trend-following quant hedge funds, such as Systematica’s BlueTrend and Man AHL’s Alpha.
In February, many quant hedge funds were rattled by a sudden burst of a more mysterious, under-the-surface stock market chaos that was largely unnoticed by traditional investors.
It later emerged that two investment teams at Millennium that specialise in index rebalancing — betting on and against stocks that are expected to be promoted or relegated from major benchmarks — had lost about $900mn. The subsequent deleveraging rippled through several corners of the stock market and dinged a host of quant strategies in the process.
Then came President Donald Trump’s “liberation day” tariff tantrum. This was a big deal for investors of all stripes, but the abruptness of the crash — and the rapid recovery when the US administration paused its tariffs — wreaked havoc on a lot of quant models. Once again, it was particularly painful for quants that specialised in surfing trends, but to varying degrees.
Systematica’s BlueTrend and Man AHL’s Alpha funds lost 8.8 per cent and 4.3 per cent respectively in April, but AQR’s Managed Futures fund only dropped 1.3 per cent, and AQR’s Helix fund — which systematically follows trends in more exotic markets — returned 3.9 per cent. Some other quant strategies did fine. Both of Renaissance’s two public hedge funds were hit by the immediate turmoil but ended the month with positive gains, for example.
Over the summer, many quants were struck by another puzzling bout of turbulence that largely seemed to pass traditional investors by.
This particular tremor appears to have started in June as a retail-driven rally in “garbage stocks”, which squeezed short positions at some quant hedge funds. That in turn appears to have led to a broader deleveraging in adjacent corners of the stock market that hurt everyone with similar strategies. As MSCI concluded in its postmortem:
Given the bullish market, it isn’t surprising that the stocks with high beta, volatility, trading activity or large market-cap performed well. However, anomalously, momentum stocks did not do well. Heavily shorted stocks also outperformed, a clear headwind for the short leg of these systematic funds, and, consistent with the idea of a “junk” rally, profitable stocks also underperformed.
. . . We found clear evidence that this performance drag was greatly magnified by large interaction effects among these same factors and by a partial crowding unwind.
What started as a series of small but almost daily, grinding losses eventually morphed into something a bit more unsettling. Some quants said that by mid-July it was eerily reminiscent of a major investor hurriedly liquidating a large portfolio, in an echo of the proximate cause of the 2007 quant quake. “It felt like a body was hitting the market,” one quant fund manager recalls.
No bodies subsequently emerged, but the pain was fairly widespread. AQR’s Delphi and Apex funds suffered their worst months of what was otherwise a strong year in July, and RenTech’s two public funds suffered their first severe setbacks of 2025. Other funds hurt by the summer quant quake reportedly included Point72’s Cubist unit and high-flying Qube Research & Technologies. Aurum, a hedge fund investor, estimates that “statistical arbitrage” funds had a particularly bad July, losing 2.9 per cent on average.
Interestingly, it looks like the summer mini-quake marked a nadir for trend-following quant hedge funds. Most took some hits in July, but they were mostly very minor, and both August and September were exceptionally good for a host of them. Systematica’s BlueTrend returned 9 per cent in September alone, and Man AHL’s Alpha fund has now erased its earlier losses.
Greg Bond, Man Group’s chief investment officer, told Alphaville that the year had been a turbulent one for quants, but stressed that it had mostly not been a violent one.
There have been four to five of these small quant quakes this year, with pockets of deleveraging. But markets have largely absorbed them. Idiosyncratic risk has just become a new factor.
The latest quant tremor came in October. This time the cause was somewhat mystifying, the nature hard to nail down and the impact on various quant hedge funds extremely varied. But RenTech’s RIEF and RIDA funds were very clearly the biggest victims.
The 14.4 per cent loss suffered by the roughly $18bn Renaissance Institutional Equities Fund in October was its biggest monthly loss in more than a decade, surpassing even the blows dealt by the Covid-19 pandemic in 2020.
Rival quants that have studied the pattern of RenTech’s returns say that RIEF appears to be mostly tilted towards two stock market characteristics that were both punished in October: “quality” and “low volatility”.
Both are so-called investment factors that over time are supposed to deliver modestly market-beating returns. In hedge fund terms it involves going long stocks of companies that score highly on various measures of steadiness and short those that score badly on the same metrics. Renaissance then probably uses leverage to bring up the portfolio’s volatility (since going long low-volatility stocks and short high-vol stocks would push the fund’s overall choppiness below an optimal level).
However, neither quality nor low-volatility factors did that badly in October, at least judging by JPMorgan’s monthly round-up of the performance of various factors. Wolfe Research’s measures of quality and low-volatility — or “low beta” as it calls the factor — were grimmer, but May to June were actually far worse than September to October.
The sudden collapse and subsequent rebound of RenTech’s funds have therefore baffled a lot of other quants and come to exemplify what a weird year it has been. As a top executive at a large US quantitative hedge fund told Alphaville:
Things have been up and down all year . . . We’ve had a series of quant crises, but with very different outcomes for different people at different times.
Renaissance declined to comment.
So, umm, what’s up?
First of all, we should note that not everyone agrees that 2025 has been a year of unusually high dispersion for the performance of various quantitative investing strategies.
Some argue that return differences are still mostly explained by how different strategies have on the whole performed — for example, systematic trend-following had a terrible first-half year but has since enjoyed a bounce — and subtle nuances within strategies.
Take “statistical-arbitrage”. Some stat-arb strategies are very focused on large US stocks, while others venture into small stocks or even emerging markets. Within systematic trend-following, some firms specialise in longer-term momentum, while others mostly exploit more fleeting trends.
However, everyone Alphaville spoke to agreed that 2025 has been characterised by an unusually large number of modest but unpleasant and unmistakable quant tremors. As a senior quant executive at a major US hedge fund told us:
Asynchronous losses are great. If everyone is doing the same then it’s a worry. But conditional on strategies there isn’t much dispersion . . . There’s been performance dispersion between different quant clusters, but if you look at each of them there isn’t actually much.
We probably got spoilt in the last two to three years, when you could spit on the ground and make money, but this year it has been harder for a lot of quant strategies.
Investment factors are an imperfect proxy for a broad and diverse industry, but it’s telling that nine out of Wolfe Research’s 16 most widely followed quant factors have lost money this year, and almost all of them have been far more volatile than usual.
Yin Luo, head of quantitative research at Wolfe Research, points out that value, short-term reversal — a decent proxy for stat-arb — quality and low-vol/low beta were comfortably the worst performers in 2025. “This year has been dominated by periodic risk-on and risk-off, with multiple sell-offs and ‘junk’ rallies, which triggered these mini-quant crises,” he says.
However, if we accept that 2025 did lead to a bizarre amount of divergence in the performance of even similar quant strategies — as most industry insiders say — what caused it? What could possibly make trend-following, statistical arbitrage, multi-factor quant or systematic long-short market-neutral investing to go haywire at different times and in different ways for different people?
FT Alphaville mostly heard two possible explanations:
— Artificial intelligence. Different quant hedge funds are implementing AI in very different ways, in different areas and at different speeds, which is naturally leading to very different outcomes.
This may seem like a vague, faddish explanation, but it makes a lot of sense. There is an immense amount of complexity with modern quant investing, and even extremely subtle differences in how you research signals, construct a portfolio or implement trades can have a big impact. And while some quant hedge funds have been using machine learning or natural language processing for well over a decade, others might only have recently jumped into the field.
That’s not to say that the AI vets have necessarily done better than the newbies, merely that very different approaches to AI — and areas where you implement it — could plausibly produce larger-than-usual dispersion in returns.
As a result, hedge fund A and B that might historically have mined many of the same trading signals and as a result often suffered from correlated performance might now increasingly see their fortunes diverge at times of stress.
— Crowding. As Alphaville has written about before, several large proprietary trading firms have in recent years expanded aggressively into “mid-frequency” trading. This involves holding positions for several days or even occasionally weeks, and means a growing degree of overlap with systematic hedge funds — especially those active in statistical arbitrage.
Some quants suggested that this might have been a factor behind some of the sudden drawdowns that many quant strategies suffered at various times in 2025, especially around the summer. As one fund manager told AV: “The common risk factor is crowding. You get paid for crowding, but also hurt by it, and it’s often very hard to identify ahead of time.”
Crowding can hurt all quant strategies, but it’s also possible that the arrival and expansion of a new breed of systematic trader affected certain quants more than others. For example, while trend-followers would simply have been whipsawed by market events, stat-arb funds might have seen some signals decay much more quickly than in the past.
Gird yourself for more quant shenanigans in 2026
Now to the multitrillion-dollar question: Are these idiosyncratic quant tremors subtle harbingers of something more meaningful going on?
Unfortunately, it’s impossible to say. Sorry. But quants are themselves extremely paranoid about the dangers of a major quant quake, and constantly scour for signs that one could erupt. This obviously doesn’t neutralise the dangers of one, but it should at least ameliorate it, and probably helps ensure that if one does occur it mainly rumbles quants themselves rather than morphing into something systemically dangerous.
The chances are therefore that the 2025 tremors are merely a reflection of more and more money in different forms of systematic trading and investing, which then interacts with each other in unpredictable ways — and especially so when markets are themselves chaotically pulled in different directions by a tech bubble, an erratic White House, economic divergence and increasingly influential retail investors.
As a result, CFM’s Jordan reckons we might just have to get used to these little mini quant tremors: “I think we’re going to see more of these things.”
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