SOUTH AFRICAS OWN RICHARD CRAIB IS ABOUT TO FLIP THE HEDGE FUND INDUSTRY ON ITS HEAD.
Richard Craib is a 29-year-old South African who runs a hedge fund in San Francisco. And when I say “runs”, I mean he doesn’t really run it. He leaves that to an artificially intelligent system built by several thousand data scientists whose names he doesn’t know. Richard Craib believes that some of the best stock pickers aren’t on Wall Street. The former hedge funder came to the realization that tech’s machine learning experts may be able to build better predictive models than those with finance backgrounds.
And the first year saw significant traction, with 7,500 “data scientists” creating algorithms on Numerai’s platform. Now the startup is announcing $6 million in funding from First Round Capital and Union Square Ventures to continue their team’s expansion and buy more historical data sets (Craib refused to say where they get their data).
Numerai works by building its own financial model that incorporates the algorithms submitted by others. The team democratizes participation by making the data readily accessible, but ensures that it is encrypted and not shareable.
Users are invited to download the data and build their own algorithm, targeting regions or sectors of the stock market. Most of the participants reside in the U.S., Russia or China.
These people do not invest in or generate any income from the hedge fund directly, but the most accurate submission gets awarded about $60,000 (R818, 250) in income per year, with the top 100 users all paid some money. Craib says that users are paid in bitcoin to guarantee anonymity for people who want to hide their participation in Numerai.
He acknowledged that because of the anonymity, he doesn’t know whether some of the entrants are doing something that violates the protocols set by their employers.
The fund size is over $1 million (R13, 6 million) right now, with much of the money coming from Craib personally. He hopes that a favorable investing track record will help attract institutional investors and that they can ultimately charge performance fees.