Wall Street Built a $370 Billion Business Cloning Quant Trades

Deep in the bowels of Wall Street, there’s a surprisingly successful counterfeiting operation underway: The world’s largest banks have created a booming business churning out imitation quant trades.

JPMorgan Chase & Co., Goldman Sachs Group Inc., and Morgan Stanley are among those hawking the products, which are known by the deceptively dreary name “quantitative investment strategies,” or QIS.

It’s the latest chapter in the ongoing demystification of high finance. These trades — numbering in their thousands and supplied to pension funds, family offices, and the like — replicate strategies pioneered by Ivy League academics and systematic fund managers like AQR Capital Management.

The twist is that QIS aren’t funds — the banks turn the trades into swaps or structured notes, making them easy to package and sell so clients can pick and choose what they want. It’s a buffet, not a tasting menu.

QIS runs the gamut of quant investing styles, which try to make money from market patterns established in academic research, such as the tendency for cheap stocks to outperform or for assets to trade in the same direction for a while. They originally boomed after the financial crisis as banks, squeezed by new regulations, began turning their internal trading strategies into products they could sell.