Stanford Students Aim To Build Billion-Dollar Firm

Jun 23 2006 | 8:31pm ET

Stanford University boasts an impressive roster of entrepreneurial alumnae. Now, two of the university's Ph.D students are hoping to make their mark on the financial world even before they graduate.

Oren Shiran and Stefan Tang have taken leave from the school's computational and financial mathematics program and are utilizing their quantitative skills to manage money in the real world. Last August, the two twenty-something-year-olds launched QMHF Capital Management, a long-short hedge fund that employs a directional-quantitative strategy.

Shiran, who has a bachelors of science in electrical engineering and computer science from the University of California, Berkeley, explains that the proprietary system that he and Tang utilize means that there is not a lot of human involvement with trading.

"We are very systematic," he said, explaining that they do not utilize historical data to predict the future, which a lot of quantitative models do. "We don't believe in that, we trade only based on concepts and not on pattern recognition."

The fund invests in U.S. equities across all sectors and market capitalizations, though it limits its exposure in micro-cap stocks in order to reduce risk. The pair relies on proprietary algorithms and computer models to sift through the myriad pieces of information in the markets in order to find hidden inefficiencies.

"Because there is a large amount of data out there, and because analysis of this data is very complex, we can use more artificial intelligence and computational finance methods to find the sort of market nuances that we are looking for," he said. "The concept of identifying market inefficiencies is well known, but actually how to identify a specific situation that yields a profit opportunity is quite complex when you have so much data."

While at Stanford, Shiran and Tang worked on research projects under Gene Golub, a world-renowned professor who specializes in computational methods and matrix manipulation. However, the two have admittedly never managed money professionally before launching their venture last year.

"We don't have a lot of experience in professional money management, so that is a hurdle," said the soft-spoken Shiran, explaining that his goal is to prove the strategy through the fund's track record. "I think our door will open up a little bit more once we get a year behind us."

Shiran and Tang's long-term goal is to build up the firm, which currently has $2 million in assets under management, to be a billion-dollar business.


In Depth

Q&A: TCA Fund Management's Bob Press on Small-Cap Private Equity

Aug 25 2016 | 8:55pm ET

The emergence of private credit as a replacement for traditional bank financing...

Lifestyle

Kiawah: Island Reversal

Aug 24 2016 | 9:59pm ET

Looking for real estate investments but the typical real estate fare isn’t cutting...

Guest Contributor

Old Hill Partners: Embrace Illiquidity

Aug 9 2016 | 2:39pm ET

The age-old financial concept that higher yields are the result of higher risk and...