Interview with Ernest Chen, Hedge Fund Manager, QTS Capital Management

Ernest Chan, QTS Capital Management
"Financial incentive is ultimately necessary, but not sufficient. The project has to be interesting and challenging to the researchers. They must feel that they are learning on the job, expanding their competence".


Ernie is the Managing Member of QTS Capital Management, LLC., a commodity pool operator and trading advisor. QTS manages a hedge fund as well as individual accounts. More information about his services can be found at

Ernie is the author of “Quantitative Trading: How to Build Your Own Algorithmic Trading Business”, “Algorithmic Trading: Winning Strategies and Their Rationale”, and “Machine Trading”, all published by John Wiley & Sons. He maintains a popular blog “Quantitative Trading” at

Ernie also teaches courses and workshops in trading and finance in London. He was appointed Adjunct Associate Professor of Finance at Nanyang Technological University and an Industry Fellow of the NTU-SGX Centre for Financial Education. He is an adjunct faculty at Northwestern University’s Master’s in Data Science program. 


When managing your team of traders/PMs, how do you handle being a player in the same team that you lead? What level of closeness and transparency about your own trading history and performance do you share?

Our track record is public, and hence there is total transparency within our organization with respect to that.I hope, of course, that our team members are able to outperform our previous track record.I do not personally engage in much manual or discretionary trading – most of our strategies are either fully automated or traded by someone other than myself.  I have even delegated most research work to our staff, but with my overall direction and close supervision.

How do you balance the CEO and CIO roles? What tasks are you comfortable outsourcing versus which ones must you absolutely do yourself?

As the CIO, my main job is capital and resource allocation across different traders/PMs, and to manage risk on daily basis.

As the CEO, I make regular but less frequent hiring and firing decisions with regard to our PM’s and researchers. I perform the necessary due diligence when hiring, and ongoing monitoring and reassessment of existing hires.

I also provide directions and suggestions with varying amount of details to our researchers (depending on their level of experience) as they create new strategies or improve old ones.

My CTO provides all technical support for our trading operation, and we outsource most accounting, reporting, and regulatory compliance tasks.

What kind of parameters do you use when assessing them for promotion/allocation increases/retention? (Performance, skills, collaboration with analysts, idea generation, etc)? Do you use similar criteria when assessing new hires?

Financial metrics such as Calmar ratio are the most important determinant of our allocation decisions. They are made on a monthly basis.

Regarding researchers retention and promotion, creativity, technical know-how, grit/diligence, and communication skills are the most important determinants.Before we hire new researchers, we assess them according to these dimensions by having them work on projects as interns.

How do you manage the different emotions that come up in individuals and the team itself? (Slumps, times of sadness, stress and burnout)? Do you focus on personal contact, financial incentives, other ways?

As our team work remotely, weekly video calls are absolutely necessary. Financial incentive is ultimately necessary, but not sufficient. The project has to be interesting and challenging to the researchers. They must feel that they are learning on the job, expanding their competence.

As a well-known and highly regarded educator, my team members find my training to be the best motivator. There were, of course, burnouts, stresses, personal issues, etc. in the past. But as my management skills mature, I have found ways to reduce the negative impact of these emotions by reallocating work-load among various workers. 

How do you manage and compensate the most ambitious top performers? How do you walk the tightrope between retaining them by giving them too much versus them leaving due to getting too little?

As a large part of the compensation to top performers is based on profit-sharing, and there are industry standards for determining the share %, this isn’t hard. 

Key Lessons from Ernie:

  • Financial incentive is necessary but not sufficient. In order for your team to remain satisfied and loyal, money is only a part of the equation. The challenge, capability to grow and the feeling of being part of a winning team are also essential;
  • There are several required key skills for team members – both for hiring new ones and assessing the existing ones. In his team, Ernie values creativity, technical know-how, grit/diligence, and communication skills. All of these are different skills, but that ultimately combine to make a great team player;
  • Clear separation of roles. From Ernie’s answer on balancing the CEO and CIO roles, we can see that he has split the roles into very specific tasks to take care of with different periodicity. This detailed division of roles allows for better planning and execution of your weekly calendar, more concentration and efficiency;

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