“The world needs exactly one hedge fund,” a deep, robotic, cyberpunk-esque voice bellows as a jet-black tower stands alone above the clouds. The slickly-produced video could very well be mistaken for a video game advertisement. The words spoken point to something else, something unexpected, surprising -- this is a video released by a hedge fund. Richard Craib, an eloquent millennial, and his company Numerai -- a hedge fund which sources the models upon which it trades from passionate data scientists around the world -- subvert the financial tradition.
Craib speaks with the unique accent of a South African, sounding like a distant cousin of the British. His speech is not the only thing which has been impacted by his place of origin. Entrepreneurship, he explained, is necessary in a country where the government gives no handouts, no assistance. It was in South Africa where Craib began his career in finance; he worked at a traditional asset manager, one where investment decisions are made by human analysis of business fundamentals. Craib stated that this experience was necessary in his creation of Numerai as finance is an industry where there is “dark knowledge” (that is, knowledge which firms have incentives to keep secret). This work experience also provided him with the foundation for what would become the investment philosophy of Numerai, one which prioritizes strong ideas and long term investments instead of trying to predict short term price movements. Craib sees high frequency trading as nothing more than a race to the bottom. The major difference being that analysis isn’t done by humans, but machine learning models.
The easily identifiable confidence of someone who is not cocky, but simply extremely well informed; the lack of stuttering, filler, a simple and easy explanation of high level topics. Usually soft spoken, somewhat reserved -- there is a certain energy in Craib’s voice when he is talking about his invention, an excitement about the topic at hand. It is obvious his head is not in the clouds, but firmly in Earth’s atmosphere.
Numerai is unorthodox not just in its approach to investing but in nearly every regard, with Richard spearheading the diversion. He replaces blue suits with flamboyant, colorful tracksuits; the stiff over-seriousness communicated by the traditional garb of the suit is missing. Instead of a downtown skyscraper, with glass enveloping 360 degrees, Numerai is headquartered in former officers’ quarters in San Francisco’s Presidio, just a stone's throw from the Golden Gate Bridge. Inside, there are not dozens of lifelong financial professionals, but instead a small coterie of brilliant data scientists and software engineers -- all completely focused towards the firm’s objectives. The culture Richard has created reflects the unorthodoxy and the intense focus; the office is casual -- everyone dresses as they please, the fridge is filled with Topo Chico, Pressed Juice, and Cold Brew -- but there is an extreme collective drive.
On October 13, 2017, Richard Craib posted to Medium a piece entitled “Numerai’s Master Plan,” which outlined how he planned to be the only hedge fund on Earth. Outlandish, egotistical, overconfident -- easy conclusions to make if he is taken at face value. The very idea of Numerai, a crowdsourced quantitative hedge fund, seems absurd to those who have spent their entire lives working in financial markets. Speaking to this statement and its realistic potential, Craib explained that in reality, it is not as far-fetched as it may seem. The plan includes four steps: the monopolization of 3 areas (intelligence, data, and money) and then the decentralization of the money -- which, decades down the line, should result in there no longer being a need for more than one hedge fund, no need for more than just Craib and Numerai.
How does one monopolize intelligence? According to Craib, Numerai is well on their way to doing just that. Craib and his team have created something completely unique in all of finance, a data science competition which powers their hedge fund -- which Craib believes is the path to monopolizing intelligence. Numerai releases their data (which for hedge funds is their most precious asset) for free, the catch being that they first obfuscate it so that the people competing cannot independently trade on their models. Where the genius lies, though, is in how people can earn money. Numerai created their own cryptocurrency with which competitors can stake their models (basically placing a vote of confidence) and make money according to how their model performed and how much they staked. Craib explained that at the current growth rate, Numerai will be at a number of users in the hundreds of thousands in a matter of years. The system they have created will make it so there is no reason for smart people to start their own hedge funds; instead, they can continue in other fields and make money submitting models to Numerai.
The next step is less developed. Numerai recently released Numerai Signals, the mechanism by which they plan to monopolize data. Signals allows anyone with unique data to submit and earn depending on its contribution to the fund. This, according to Craib, will make it so that current hedge funds have no reason to trade -- instead, they can submit the signals based on the proprietary data and research they have to Numerai and make money (without needing to invest in trading infrastructure).
The last two steps are in the earliest stages of development. In order to monopolize money, Craib must convince allocators of capital to jump the proverbial hurdle of Numerai’s oddity. Hedge funds have remained within a largely unchanged framework since their inception, while Numerai looks to completely flip that framework on its head. Craib is inventive, what he is doing is new, and the casual way in which Numerai approaches marketing is very different from other funds -- it is closer to the creative marketing of a tech startup. The problem with this step lies in the perceived unseriousness and outlandishness that comes from creating such a unique company and having marketing material which is not zipped up with its stomach sucked in. Craib does not want to be overly serious, he does not want his company to be overly serious -- the slick, futuristic videos exist along these lines.
It would be easy to see Numerai as a gimmick, a game, a toy -- something interesting, but inconsequential in a 1.3 trillion dollar industry. It would be easy, even after understanding his plan, to see Richard Craib as a wide-eyed visionary. Earlier this month, though, these claims became much harder to substantiate. Craib published another Medium post in which he put his cards on the table to back up his talk. He revealed that, over the past 2 years, Numerai has outperformed top market neutral quantitative hedge funds by 29%.
In his visionary quality, his innovative thinking, Craib diverts from his finance counterparts; instead of working within a decades-old system, he seeks to completely reinvent it -- less Warren Buffett and more Elon Musk. Craib believes in his, and humanity’s, ability to change the world -- his favorite book being The Beginning of Infinity, a book which espouses this point. Craib himself identifies Numerai as closer to the tech industry than to finance, though he doesn’t see the two as separate. Instead, Craib believes that recent developments in software (especially with blockchain technology and advances in machine learning) will result in Silicon Valley taking over nearly every existing industry. The master plan is a work in progress. Each successive step is less developed than the last. When Craib explained each step, the appearance of outlandishness unraveled, any portrayal of him as similar to Adam Neumman or Trevon Milton seemed completely unfitting and foolish; here was someone who is not just a bright guy with crazy ideas, but one who had a plan to execute upon those ideas and create the future which he has posited.