Wall Street Banks See 30% Revenue Surge From Quant Strategy Sales

A new report shows Wall Street banks are earning up to 30% more revenue by selling quantitative investment strategies to a wider range of investors.

Wall Street’s top banks are aggressively expanding into selling complex quantitative investment strategies to institutional clients, driving global assets in these programs up 135% to $850 billion in five years and creating a new, fast-growing revenue stream. The move pits them against traditional hedge funds and asset managers, as pension funds, endowments, and family offices seek more sophisticated, automated trading solutions.

“The speed of the market is increasing, and we don’t have conviction about managers who mainly rely on fundamental analysis,” says Elmer Huh, chief investment officer of the Murdock Trust, which recently allocated 3% of its $2.1 billion portfolio to a Goldman Sachs QIS fund. “We think we can adapt a lot quicker with a quantitative approach.”

JPMorgan’s markets unit, a major QIS provider, has seen revenue from these strategies jump 30% this year, an acceleration from 25% in prior years, with over $100 billion in notional exposure. Globally, QIS programs managed by banks have swelled from $362 billion five years ago, representing over $1 trillion in market exposure when leverage is included, according to data from Premialab. Goldman Sachs Asset Management now manages about $175 billion in QIS funds, roughly 5% of its total assets.

The rush into systematic strategies reflects investors’ fears that traditional methods are too slow for AI-driven markets and a desire to diversify away from passive indexes dominated by a few large tech stocks. For banks, QIS offers a nearly risk-free, high-growth revenue line that requires less capital than traditional trading, though the "overcrowding" of these strategies poses a new systemic risk.

A High-Growth, Low-Capital Business

Unlike proprietary trading, where banks risk their own capital, QIS programs involve executing trades on behalf of clients based on preset rules. Banks earn fees from the trading volume, structuring the strategies often as derivative contracts like total-return swaps. This model is attractive because the revenue is reliable and capital-light, a key advantage under current banking regulations.

“Portfolio managers and analysts cost money and get bonuses,” Glenn Schorr, an analyst at Evercore ISI, says. “Computers don’t.” The efficiency of automated strategies allows banks to scale the business rapidly, contributing a “decent portion of the growth” in their wealth channels, Schorr adds.

Risks of an Overcrowded Trade

The surge of capital into similar quantitative strategies is raising concerns about market stability. With an estimated $1 trillion in notional value, these programs are large enough to influence market movements. Arnab Sen, a portfolio manager at Paloma Partners who previously developed QIS products at Barclays, warns that aggressive hedge funds are already trying to anticipate and trade against these systematic flows.

“It exacerbates moves in the market,” Sen says. The cat-and-mouse game between these large, automated strategies and opportunistic traders could amplify volatility, particularly during periods of market stress. The risk of overcrowding, where too many investors chase the same signals, could also erode the profitability of these strategies over time, says Ramon Verastegui, founder of Kairos Investment Advisors.

This article is for informational purposes only and does not constitute investment advice.