February 3, 2014

The Big Data Edge

How a tiny quant fund started by MIT graduates is exploiting thousands of sources of global data-from news alerts to geosensory feeds to social media-to create its next big deal.

By Phil Albinus

It's one of the strange truisms in today's investment world: Traders are drowning in data and yet they still want more. In this age of so-called big data-the term marketers and solution providers call the huge sets of information from various sources-buyside firms continue to look for ways to exploit this endless stream of data to help score the next big deal. At Flyberry Capital, a small quant shop opened for business in 2012 in Cambridge, Mass. by a trio of graduates from the Massachusetts Institute of Technology, big data is more than a buzzword-it's the very foundation of how this ambitious hedge fund researches, analyzes and executes its trades.

And they've been tested under fire. Shortly after opening their fund, the Flyberry Capital principals entered a hedge fund competition to test their big data strategies against 350 other small and aspiring quant strategy funds to win the $1 million seed money from contest sponsors BattleFin and Lion's Path. From the start, the new MIT graduates-founder and CEO Michael Chang, co-founder and COO Zeid Barakat and chief technology officer Sean Chang (no relation to Michael)-impressed their sponsors at what was dubbed "The Hunger Game for Hedge Funds."

They were "the smartest guys in the world with a really great strategy," Tim Harrington, president of BattleFin, a recruitment firm for hedge funds, told Bloomberg News. "And they couldn't get capital."

All that has changed. After beating out the other hedge fund start-ups, Michael Chang, Barakat and their team of 10 employees are running a quant shop that is on the hunt for big data. With Sean Chang, a former Google fellow and MIT graduate with more than 50,000 hours of programing experience ("He's like the Michael Jordan of programmers," says Barakat), Flyberry created the Flyberry Engine, a search engine that scours the Internet for market data, news alerts, social media, government reports and announcements, and reports from weather, earthquake and other geosensors. While other hedge funds use traditional market data feeds from Bloomberg, Reuters and assorted stock exchanges, Flyberry casts its net much wider with its homemade global information system.

Flyberry Capital is the definition of a small quant shop: It has 10 employees, most of whom are analysts who hail from MIT, Harvard and Stanford, and only two of them are authorized to execute deals as traditional traders. The fund started as a proprietary trading shop and now calls itself a sub-$10 million firm with plans to grow tenfold in the coming years. And despite its big-data and high-tech pedigree, Flyberry Capital is not a high-frequency trading firm looking to score the next sub-second trade and move the markets in the process. Its portfolio focuses on a narrow basket of 18 or so highly liquid instruments such as index futures, currency futures, energy futures and different commodities.

"We never want to be the majority participant in markets and focus on things that we cannot easily enter and exit fairly rapidly," said Barakat.