Crowd-Sourced Hedge Fund Gaining Interest and Profits

January 2, 2017 James Heinsman Hedge Fund News

Logo of Numerai courtesy of Rolly Jodger.

Richard Craib had a new idea: Perhaps high-tech’s “masters of the universe” can outperform the old-fashioned, finance guys who predominate on Wall Street?

To test his theory Craib, a former hedge fund manager, started Numerai last year. It is a crowdsourced hedge fund which hopes to bring over the best thinkers from places like Google, and remunerate them for their creative development of algorithms that tell the fund how to invest.

The first year Numerai had about 7,500 “data scientists” building its platform with new algorithms constructed with the help of historical data. Where the data comes from exactly is a secret Craib is not ready to share. Numerai received $6 million in funding from First Round Capital and Union Square Ventures which will be used to purchase that data and pay the scientists whose algorithms prove the most successful.

“We invested because Numerai is an open access hedge fund,” said Andy Weissman, a partner at Union Square Ventures. Anyone can participate, so it’s a “model built upon a set of principles that have open participation and anonymity at their core.”

The algorithm developers do not invest in or receive any income from the hedge fund directly. The scientists are motivated by the award of a $60,000 salary for the most accurate submission, while the top 100 users are all paid some amount of money. In order to maintain anonymity of the participants, Craib pays them with bitcoin.

The fund is managing about $1 million at the moment, with the biggest piece coming from Craib himself. He is hoping that Numerai’s success will help attract institutional investors, and that one day they will be able to charge performance fees.

So as not to violate SEC rules about marketing to the media, Craib could not say how well the Numerai is doing compared to the Dow Jones Industrial Average. But he was able to admit that the fund is “performing very well,” enough to allow them to raise new funding.

Andy Weissman, bitcoin, crowdsourcing, First Round Capital, Numerai,

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