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A hedge fund is a collection of investors that make bets on the future. The “hedge” refers to the fact that the investors often try to diversify their strategies so that the direction of their bets are less correlated, and they can be successful in a variety of future scenarios. Engineering-focused hedge funds have used what might be called “machine learning” for a long time to predict what will happen in the future.
Numerai is a hedge fund that crowdsources its investment strategies by allowing anyone to train models against Numerai’s data. A model that succeeds in a simulated environment will be adopted by Numerai and used within its real money portfolio. The engineers who create the models are rewarded in proportion to how well the models perform.
Xander Dunn is a software engineer at Numerai and in this episode he explains what a hedge fund is, why the traditional strategies are not optimal, and how Numerai creates the right incentive structure to crowdsource market intelligence. This interview was fun and thought provoking–Numerai is one of those companies that makes me very excited about the future.