In 2025, many systematic, algorithm-powered trading strategies suffered an abrupt reminding “quant quake” of 2007-2009. This trend has been quietly emerging since 2020-22, but has become much more apparent in the past year or so. The confluence also has myriad implications for both industries — and the markets where they’re increasingly colliding.
Early October 2025 saw a “quant quake”, but most quant hedge funds had recovered by the end of the month. There was one big exception. For example, RenTec hedge funds for clients – Renaissance Institutional Equities Fund (RIEF) and the smaller Renaissance Institutional Diversified Alpha Fund (RIDA) were down around 15% for the month.
Many hedge funds were buying low volatility stocks and shorting high volatility low quality stocks, and this caused the losses. The basket of the most-shorted stocks rallied hard in October 2025. But the reality is that large hedge funds funds have a wide variety of signals they are harnessing, and it is unlikely to be that simple. It could be that a number of the major signals these two funds were using are not working and have not worked as well for a long time.
Information on the large hedge funds is sparser than hedge funds with external clients. But it is estimated to manage $10-15bn of AUM exclusively for the current and (some) former employees, and press reports suggest the eye-watering returns have continued. Money is returned to these fund investors every year to keep the size of the fund at a reasonable level. The famous 5-10% management fees and 40-45% performance fees are still levied. Looking at the net returns to the large hedge fund’s investors and these fees, it does not sound unrealistic to assume that employees/fund investors share around five billion dollars of trading profits every year.
For example, RIEF charges management fees up to 1.5% (there may be some investors on less than that) and performance fees up to 10% of returns. Assuming the same level of returns as the last decade at the current AUM level, and even if all investors are largely paying the full fee this fund is generating less than $400m for the firm. But the recent performance issues could easily mean that RIEF continues to shrink in assets and profits generated.
