How Winton founder David Harding surpassed Man AHL

		David Harding: Part scientist, part punk rocker (Photographs by Harry Borden)

Last October staff members of hedge fund firm Winton Capital Management gathered for a celebration at the Royal Exchange in the City of London. As champagne flowed and Winton founder and chairman David Harding danced to the music of a live band featuring former Dire Straits bassist John Illsley, some 250 Winton employees commemorated an important milestone. Winton was on its way to raising $10 billion in 2011, and it had just surpassed another big managed-futures hedge fund firm, Man AHL, in assets. Harding had co-founded AHL in 1987 but left on less than friendly terms and now openly calls it a “fierce rival.” The location itself was symbolic for Harding. Royal Exchange, now a private party venue, was previously home to the London International Financial Futures Exchange, where Harding had started his career as a young, inexperienced trader some 30 years ago.

Harding’s career — and indeed, the managed-futures industry as a whole — has come a long way since then. At 52, Harding earned $120 million last year alone, according to AR’s Rich List, and Winton, which now manages $28.5 billion in assets, is the fifth-largest hedge fund firm in the world. Its flagship Winton Futures Fund has made money for 14 of its 15 years, with an annualized return of 15.76 percent. Perhaps most impressively, Harding has done much to legitimize the reputation of managed futures as a trading strategy, proving — thanks to strong performance — that the commodity trading advisers, or CTAs, that use this strategy are capable of delivering positive returns that are not correlated to other financial markets.

In short, Harding is well on his way to accomplishing the goal he had in mind when he started Winton in 1997. He wanted to build a large institutional asset management company driven by proprietary research, using that research to design quantitative computer trading models that protect investors from the vagaries of the markets by spotting and exploiting inefficiencies. If that sounds like Renaissance Technologies Corp., that is no accident. Harding, who studied theoretical physics at the University of Cambridge, cites Renaissance’s founder, James Simons, as a role model of developing quantitative strategies. He frequently points to the vast research that Simons’ fund has produced and tells investors that he is running a fund that, like Renaissance, is grounded in research.

But Winton is also at a critical juncture. Harding and his team now face the daunting task of managing huge sums of money in a way that consistently keeps investors happy. And Renaissance, the firm Harding deeply admires, stands as a cautionary tale of just how difficult that can be. In 2005, Renaissance, which had closed its wildly successful flagship Medallion Fund to outside investors three years earlier, launched its Renaissance Institutional Equities Fund to grow its institutional business. At the time, Simons said that the fund, which was meant to outperform the Standard & Poor’s 500 Index while maintaining 100 percent market exposure, could grow to $100 billion in assets. Initially, RIEF was enormously successful, at least in part because investors thought they were getting the same algorithms that had powered Medallion to 45 percent net annualized returns. But the excitement soon turned to disappointment when Medallion’s returns far outshone RIEF’s. Though the firm told investors that RIEF was a completely separate strategy from Medallion and not meant to produce the same return profile, disappointed investors pulled their cash, and the fund has yet to recover. It now totals just $6 billion, some $20 billion off its peak.

Man’s AHL fund is another example of how difficult it can be to maintain success at a certain size. Harding’s archrival fund has suffered from poor performance and redemptions in the past three years, dropping from $23 billion in assets in 2010 to $21 billion as of the first quarter of 2012. The flagship fund, Man AHL Diversified, posted double-digit gains for so many years — including a 33.22 percent gain in 2008 — that investors found it hard to swallow losses of 16.89 percent in 2009 and 6.83 percent in 2011. Though the fund was up 14.82 percent in 2010 and as of March up 0.80 percent year-to-date, the loss of $2 billion in assets has dragged down the share price of Man Group, which depends on AHL for approximately 70 percent of its revenue.

“I’ve had a bit of a grudge with Man AHL,” Harding admits. “And eclipsing them was a long-held ambition, to be fair. I wanted to prove I could beat them, but I wasn’t as immediately successful at beating AHL as I thought I would be.”

For all his success, Harding tends to look his most gleeful when he’s depicting himself as a rebel and an underdog. That’s partly why managed futures, a strategy that took years to gain respectability and traction with institutional investors, suits his nonconformist personality. He contends that the scientific research that Winton does is not really fashionable because the Efficient Market Hypothesis suggests research can’t produce results. Others in the CTA world, however, see Harding as a major force in demonstrating the value of managed futures. In 2008 managed-futures funds returned more than 14 percent, on average, while global markets posted large declines. The performance was seen as proof of what managers like Harding had been saying for years, that the strategy is capable of delivering returns uncorrelated to other financial markets. And it’s partly why Winton has mirrored the meteoric rise of RIEF seven years ago.

“David has been a leader in bringing the investment world around to the idea that markets are not always efficient,” says Patrick Welton, CEO of $1 billion hedge fund firm Welton Investment Corp., in Carmel, California.

Like Winton, Welton specializes in managed futures and global macro strategies, but the California firm’s founder doesn’t view the two organizations as competitors. “I think it’s more a matter of CTA funds competing with the more inefficiently allocated capital that represents 97 percent of all investment capital in the world,” Welton explains. “And David’s efforts to educate investors have done nothing but benefit the industry.”

		Anthony Daniell: The Winton CEO is focused on building a better research platform

Winton can also credit its growth in the past few years to capturing market share. With CEO Anthony Daniell at the helm, the firm is making a push to grab even more, launching two U.S.-domiciled funds this summer to meet growing investor demand in a market where the Winton Futures Fund is available only through the offshore platform or distributors. To continue its spectacular growth — and to avoid the pitfalls that often plague the largest firms — Harding knows that Winton must continue to excel in identifying and exploiting the kinds of market inefficiencies that have powered its previous success. Winton spends more than $30 million a year on its research budget, including salaries for its 110 researchers, and intends to continue hiring. Harding, who retains the title of head of research in addition to his chairman’s role, feels so strongly about protecting his firm’s intellectual property that the only way he will let a journalist talk to his researchers is if their identities are not disclosed.

Winton’s most important work is accomplished not at the firm’s main offices, in South Kensington, but at Oxford Science Park, a complex of buildings comprising some 530,000 square feet of offices and laboratories near the University of Oxford campus. Winton moved into offices in a modern, glass-and-metal building in 2005, and most of its researchers work there. Its neighbors are by and large software designers and biotechnology companies.

Head of equity research Mark Precious and chief investment officer Matthew Beddall (who is Harding’s nephew) oversee the research team. Some researchers prefer the bustle of London, so they have the option of working out of a third office, in Hammersmith, London, west of Kensington.

The research work is aimed at delving ever deeper into market data that offers clues to the causes of a given price movement in a security or asset class. By studying past patterns, Winton’s researchers hope to gain insight into what might happen in the future as an asset heads upward or downward.

Winton’s researchers compile enormous amounts of market data; the firm now has about 40 terabytes — enough to equal the text in 70 million copies of the King James Bible. Its researchers have trekked to libraries and archives, and gathered such data as daily metals prices going back to 1910, food prices dating to the Middle Ages and London Stock Exchange prices stretching back to 1690. Not all of the data is in active use, but it might be helpful for detecting patterns at some point.

“We’re aiming to keep on improving the product,” says CEO Daniell, 57. Daniell spent ten years in the British Army, then nearly two decades in the City of London, where he specialized in U.S. and emerging-markets equities. He joined Winton in October 2004 as head of global marketing and sales, and was promoted to CEO in October 2010. “The best analogy is the car industry,” he adds. “Each year there might be only small improvements on a model, but over time those improvements add up, so that a car made today is better than one made ten years ago.”

Although most of the researchers have math and economics backgrounds, many of them also have Ph.D.s in scientific disciplines that on first glance seem completely unrelated to finance. There is an astrophysicist, a meteorologist and a cosmologist. The one thing they have in common is a deep knowledge of statistics and how to use them accurately. Harding has a great regard for statistics as a way to lead to improvements in society, except for the fact that they can be so easily misused. “The normal use of statistics is not to gain understanding but to persuade,” he says. That is no less true in the markets than in politics and other disciplines, he adds.

One Winton researcher compares market expectations to a classic 1985 study in which cognitive psychologists examined what they called the hot-hand fallacy in basketball. The study showed that a player who has successfully scored a basket is no more likely to make his next shot than a player who missed the last shot. As with hot stocks that rise because of active trading, however, a basketball player believed to have “hot hands” may have increased opportunities to score because teammates expect him to do so and therefore pass the ball to him more often.

Harding is aware that CTAs typically have only a small edge — they make money by being right a little more than half of the time and by knowing when to cut their losses and let their winners ride — and that it becomes harder to profit as more money flows into the sector. Some 20 percent of the capital is in the hands of the largest players, which include, in addition to Winton, Altis Partners, Aspect Capital, BlueCrest Capital Management and Man AHL.

“If we discover a way of making money, then everyone else does more of it too, and then there are more competitors and it doesn’t work as well,” Harding says. “Presumably, you can go on making money if you can find some new trick fast enough. That’s what we’re trying to do by investing heavily in our research, hiring a lot of financial mathematicians and diversifying into more markets. We’re trying to discover new tricks that we can use.”

In regular Monday morning meetings, researchers present their findings to Harding, who decides if an idea is worth pursuing further. If it is, a staff software designer codes the findings into simulation software so that the team can see if it will work in practice and test for errors. About twice a year Harding calls the staff into a meeting and presents a prize to the research he likes the most. The prizes are idiosyncratic but valuable. One researcher is the proud owner of a 30-kilogram (66-pound) block of lapis lazuli, earned for improving trading systems. A statistical arbitrage researcher received a small pirate’s chest of genuine silver doubloons (his children play with them, he says) for a study of how certain common elements in equity data can lead to conclusions that appear to be predictable but aren’t. “Without this insight we could be in danger of giving too much portfolio weight to strategies that benefit from the effect, especially in those cases where its influence is subtle,” says the researcher.

Other important discoveries have revolved around the limitations of indexes. Winton now trades cash equities and equity indexes in addition to futures, options and forwards through both the futures fund and the Winton Evolution Fund, a macro quant fund that the firm launched in 2005. In 2009, when the futures fund declined by 4.64 percent, its only down year to date, and the dollar-denominated version of the futures fund declined by a little more than 5 percent, most of the losses came from missing the upward trend in the stock market in March of that year. According to traders, Winton was slow to move from short positions on equity indexes. Now the firm has funds that hold individual cash equity futures as a strategy that is uncorrelated to the equity index futures it uses as a hedge.

		Mark Precious: The Oxford economics Ph.D. is head of equity research

Researchers at Winton conducted experiments last year that pretty much blew out of the water the idea of benchmarking to indexes. “You might think that in using the S&P 500 you are benchmarking to a diversified portfolio of 500 stocks,” says Precious, 55, who joined Winton in 2005 and has a Ph.D. in economics from Oxford. “But in practice the effective number of stocks is much smaller because the weighting is so skewed to the largest stocks. If you weight by size, it says little, or nothing explicit, about the expected returns and risk.” Winton has produced quant systems that have reweighted equity indexes based on risk and return forecasts as well as estimates of costs and turnover rather than on size. Harding believes the whole idea of using indexes as proxies for the markets will be seen as anachronistic someday.

“Investors have come to think that the system of using indexes is actually the market,” says Harding. “It has been so effective that literally people have said no other systems are possible. Certain ideas have such a grip on our minds in certain periods of time, it’s hard to let them go, because people always prefer to be wrong in a crowd. But there are an infinite number of alternatives to the S&P 500. If you try an alternative, you might make just 20 basis points a year more, but compounded over 25 years, the additional earnings can be equal to the entire U.S. GDP.”

Jerry Pascucci, head of alternative investments at UBS’s wealth management division in New York, has been investing with Winton since the Futures Fund’s inception and says he was impressed from the start by Harding’s understanding of the use of statistics in algorithmic trading. “The debate isn’t so much whether such phenomenon as efficient markets or randomness or mean reversion exist, but what happens in between those regimes,” says Pascucci. “Markets can diverge with far more magnitude and duration than the consensus might expect.”

Looking at what distinguishes the best CTA managers, Pascucci says that in the 1980s and 1990s a typical trend follower would consider each constituent market in its trading program in a vacuum, and place their chips on the table accordingly. “Others focused on evolving the approach by advancing the science and technology that underpinned their strategy,” he says. “That’s when it became clear that David was setting a new bar for the industry.”

Harding’s edge has always been an offshoot of his rebel persona, not just when he was an undergraduate at Cambridge with hair spikes that he dyed pink — “I demonstrated, obviously, a desire to be the center of attention” — but also early in his financial career.

He grew up in largely pastoral Oxfordshire, in Goring-on-Thames, where his father was the chief horticultural officer of the Commonwealth War Graves Commission. Today, Harding owns a country house in the area, a restored barn, and last year he even bought a pub, the Seven Stars in Toot Baldon — not to diversify his business interests but as a personal investment to keep the village’s only remaining pub from going under.

In his undergraduate days at Cambridge, Harding hung out at punk rock clubs, but he was also a serious student, graduating early, at 20, with honors. After university he was interested in making money, and that led him to the floor of the London International Financial Futures Exchange and shortly after that to Sabre Fund Management, one of the U.K.’s first CTAs.

There was another CTA in London at the time, run by Brockham Securities, a sugar brokerage owned by Michael Adam’s family. Adam, who had just dropped out of Oxford, joined his family’s firm and brought to it his fascination with computers, converting ledger entries and handwritten charts into computer programs. It was the early 1980s, and Adam points out that what computers could do “was perceived to be almost magic.” He brought in Oxford classmate Martin Lueck, also a computer programmer, and then Harding.

“What was clear from the start was that David had an absolute fascination with both markets and technology,” says Adam. He also recalls that the three of them were looking ahead. They observed that the U.K. was about to restructure its financial markets, paving the way for the Big Bang in 1986, which eliminated fixed commission rates. That meant that a brokerage business such as Brockham was doomed unless it became an advisory firm. Adam says his father didn’t just reject the idea; he fired Harding and Lueck while Adam was on vacation.

The trio, still in their 20s, decided it was time to start a CTA of their own, and Adam, Harding & Lueck was born. From early on, says Adam, Harding was a person with big ideas who believed that most investors were using fairly dubious assumptions. “He’s genuinely eccentric and has always been a maverick,” says Adam. “Indeed, that has been the root of his enormous success. It could have gone horribly wrong, but it didn’t. He was someone who was either going to be a great success or end up sleeping underneath the Waterloo Bridge. He is one of only a handful of people in financial markets who has consistently held his ground against the prevailing wisdom and won.”

When Adam, Harding and Lueck started their new firm in 1987, CTAs still had a reputation as the rogues of the investment world. The three set out to prove that, contrary to the long-held belief that markets are basically efficient, a fund can perform well by identifying a wide range of incorrect pricings and being right about 51 percent of the time. They were pioneers in using computer algorithms that allowed them to minimize trading costs. They were among the first to adopt a measure then known as Total Portfolio Risk that was identical to what is now the standard technique used to estimate the probability of losses based on statistical analysis of historical price trends and volatility: value at risk.

In 1989 the partners had an offer to sell a 51 percent stake to ED & F Man (now Man Group). The new controlling partner provided them with a strong global distribution network and allowed AHL to grow rapidly. The marriage began to turn sour, though, as Harding pushed for an emphasis on research and ran up against resistance. One of the problems was that AHL’s technology allowed lower trading costs, but that conflicted directly with Man’s business model, which depended on charging high fees for the firm’s services, according to people familiar with the situation. Harding has said that in spite of the high returns AHL was generating through the research he oversaw, the corporation preferred to take the proceeds and reinvest them in other areas of the business. The three partners, in a particularly ill-timed move, put forth a bid for independence about six months before Man launched its initial public offering in 1994. Adam and Lueck sold their remaining equity and left, while Harding stayed until 1996, running Man Quantitative Research as an autonomous unit. People who know him say he was continually in conflict with a management that believed in emphasizing sales efforts rather than research. He still talks about that period as the lowest of his life, both personally and professionally. “I spent about three years getting divorced and then thrown out of my company that I had built up,” he says.

In 1998, Lueck started a new CTA firm of his own, Aspect Capital, which now has about $7 billion in assets. Adam is a nonexecutive board member and investor in Aspect, but he decided to pursue more-artistic interests, dabbling in writing novels. He is now a rock musician using the stage name Mike Marlin. Harding launched Winton Capital in 1997. Martin Hunt, who had been head trader at AHL, became chief operating officer; Osman Murgian was an early investor who became a nonexecutive director of the firm. Harding was the majority owner and continues to be — he won’t make the mistake of selling his ownership again.

The new firm opened its doors with about $1.6 million in assets; the first month the Futures Fund declined 13 percent. One of Winton’s early employees was Brian Draper, a statistician Harding had brought from Man AHL. Draper, whom Harding has called his guru of systematic trading, died in 2002 after a long illness, at the age of 50. The loss was devastating for Harding, who sadly jokes about investing his hopes in a partner and friend who repaid his faith by dying. But Harding really doesn’t like it when key people abandon his ship. About a dozen individuals Harding has trained either at AHL or Winton have left to start their own funds. “What I should be saying is ‘I wish them well,’?” he says. “We’re all slightly competitive in a general sort of fight, but there’s no intellectual-property protection in our field.”

Still, Harding has figured out how to use his setbacks to reassure investors that he can turn things around. “My career has gone through numerous low points, each completely lower than the last,” he says. But he adds that these disasters have ultimately proved to be not only beneficial but critical to his career. The most instructive periods were those when he endured lengthy drawdowns. “In 2002 we went to a 30 percent drawdown,” he explains. “But once you recover from a 30 percent drawdown, it’s the best possible thing that could ever happen to you, because any other subsequent drawdown is probably going to be less than that. So when a client asks if you’re worried, you just say, ‘Oh no, I’ve been through worse drawdowns,’ and they accept that.”

Early in the life of Winton, a large wealth management client called Harding in to ask about a sequence of months in which the Futures Fund had lost money and was underperforming many peers. “It was a fairly difficult meeting,” Harding recalls. But he gave a matter-of-fact answer: “Someone has to be at the bottom.” It was his way of getting to the point that CTAs invest for the long term and that one will always be the underperformer. The meeting ended with the client adding to its exposure with Winton, and the next year the Futures Fund outperformed the industry, returning a stunning 52.17 percent for 1998, its first full year of operation.

By 2005, Winton had established a strong track record, without a single down year. That was the year that Renaissance opened to outside investors for the first time in three years with its RIEF fund. Although the fund peaked at $26 billion in assets in 2007, it fell to earth the following year, when it lost 16 percent. That result was nowhere near as bad as the broader market’s decline of 40 percent, but it was nowhere near as good as Medallion’s 80 percent return that year.

Harding learned his own lesson in humility that same year. The Winton Futures Fund gained 21.01 percent in 2008 through long positions in grain, precious metals and energy sectors in the first half, then later in the year by holding 95 percent of its assets in Treasury bills, cash and cash equivalents. But like most hedge funds, especially those with very liquid strategies, it suffered a large number of redemptions from investors who were skittish about the markets in general. It has won investors back in the past two years thanks to an aggressive campaign to woo them.

It hasn’t hurt that the fund offers investors a management fee at the low end of the hedge fund scale. The Winton Futures Fund charges a 1 percent management fee, whereas many funds charge 2 percent and Man AHL charges as much as 3 percent.

		Matthew Beddall: Winton’s chief investment officer is also Harding’s nephew

Winton has a small in-house marketing staff, and most of the sales effort is left to large institutions that invest in the firm’s managed accounts, then use their own distribution channels to sell the funds. Harding nonetheless tries never to take investor enthusiasm for granted. In an investor letter of recent vintage, from March of this year, CIO Beddall took a very non-black-box approach to the issue of redemptions. The Futures Fund was down slightly for the month (0.68 percent), and Beddall brought up 2008 as a way of letting investors know about a recent research project that performs daily stress tests to simulate the liquidation of the portfolio. The tests gauge how long liquidation would take and how much it would cost. Beddall, 32, has been at Winton for 12 years, starting as an intern. He really wanted to work there from early on. “I twisted David’s arm,” he says.

Winton’s trading all comes from the research, with algorithms that indicate when to buy and sell. The firm’s eight traders work from the offices in South Kensington, near Harding’s home, in a mews surrounded by 18th-century houses. British journalist David Frost is a neighbor, and in the late 1990s the building was occupied mostly by dot-com start-ups.

When he started Winton, Harding wanted to have a fund that could trade faster than Man AHL. After five years, however, he found that high frequency trading was expensive. Winton now trades at a relatively low frequency rate for a CTA, holding on to positions for months and sometimes years. “It’s obviously a trade-off,” says Harding. “You catch shorter trends if you respond quickly.”

He has investor heroes whom he quotes liberally in conversation, including Berkshire Hathaway CEO Warren Buffett and legendary hedge fund manager George Soros. When Harding considers trading costs, he quotes John Bogle, the famously frugal founder of mutual fund firm Vanguard Group, saying transaction costs are the investor’s enemy.

As CIO, a title he has held since 2008, Beddall has been concerned that Winton, at its size, could start market trends instead of just following them as a CTA is supposed to do. “Especially in smaller markets we’re cautious, because it’s not in our interest to see a disaster,” he says. The firm’s traders follow a dictum that says no matter what the market is doing, they should move in small increments. To avoid wielding influence on prices, the traders try to make sure that the markets don’t detect what they’re doing. While they use a system of algorithms to execute trades based on preset prices and volatility factors, they will occasionally make random trades so that their activity looks more anonymous. Once in a while, to keep their activities appearing random, they will even trade the old-fashioned way by placing telephone orders for base-metals trades.

In 2011 the fund profited from long positions in government bonds that the traders varied throughout the year. Early this year gains came from base metals and crops, and from shorting the euro, although positions in the British pound and Australian dollar were holding earnings down. In March the Futures Fund showed gains in equity indexes that offset its losses in bonds. A reduction in long bond positions temporarily increased volatility but kept the fund from sustaining serious losses, according to an investor letter. This has been a difficult year for managed-futures strategies, and the fund did well to keep losses below 1 percent for the month. (The fund rose 0.12 percent in April and as of April 30 was down 0.76 percent year-to-date.)

		David Harding: The Winton founder wants to help others understand the markets better

Harding, however, has investors who have seen that he can make money for them over time. And although victory is fleeting in hedge funds, Harding is not exactly displeased that today it is his old rival that has to explain losses. Man AHL declined to comment, but an May 8 investor report on the firm’s website attributes recent losses to long exposure to equity indexes and energy futures, as well as markets reacting negatively to election results in Europe and poor economic indicator data from the U.S. “It has been hard to be a trend follower in the current market,” says David McCann, an analyst with Numis Securities in London. “CTA funds have positioned their systems for bond yields to go up, then government stimulus has caught them unawares and pushed bond yields down. The stock market has been flat but volatile.” Winton, McCann notes, has demonstrated a better record for spotting trends in recent years. “Perhaps their algorithms are just better,” he says. It is a subject of everyday banter that Harding always thought Man AHL would fall apart without him. The subject can bring out the sharper edges of his wit. “My father used to tell me, ‘You haven’t won until your rivals are dead,’?” he says. Senior managers at Winton note that Man AHL still uses trading models that Harding developed and just happened to open a research center in partnership with Oxford University in 2007, two years after Harding opened his research center in Oxford Science Park. But it’s as if the rivalry is just part of the lore that makes Harding who he is. He still likes punk rock, but he has some thoughts about what happens to rock-and-roll rebels when they grow up.

“The English system is reasonably good at accommodating rebellion and assimilating it,” he says. “Most of the major pop stars who started out as terrific rebels have ended up being assimilated, and now they perform on the roof of Buckingham Palace.”

Harding is, in fact, starting a new chapter of both his life and his fund, moving the latter closer to his goal for it to mature into an investment advisory firm known for its research capabilities. Early this year he remarried. His wife, Claudia Stetter, works in due diligence for Winton’s risk department. Before she started working at Winton, Stetter was an analyst at Goldman Sachs Group. “It was a bit of a battle for her to establish being here on her own terms,” says Harding. “But she was getting up at 4:00 in the morning, and it seemed like a better idea to have her here than working so hard for a competitor.”

In addition to the new U.S. funds Winton will launch this summer, current expansion plans call for a satellite research center in Zurich, scheduled to open in July. It will be small at first — Harding expects to have a staff of seven researchers there by the end of the year — but he thinks of it partly as a way of expanding into the Continental market and partly as a way of establishing research facilities in a premier spot. In addition to the Swiss Federal Institute of Technology Zurich, one of the world’s top engineering, science and technology universities, the city hosts Google and IBM Corp. research facilities.

Winton is also outgrowing the Kensington office in the mews, where Harding launched the fund in 1997, and the London staff will all move into a larger space in Hammersmith sometime next year. Thinking about moving, Harding looks a bit nostalgic. Kensington is where his personality really shows. All around the space are financial artifacts that Harding has collected. In the front office, outside his sanctum on the second floor, are old board games with names like “Beat the Market,” “Stock It to Ya!” and “Speculation.” Colorful currencies from around the world are mounted in frames. On the bottom floor are display cases containing larger items, including an Ottoman money changer’s chest and a silver money plate.

Harding’s ultimate ambition is to help others understand markets better. In recent years he has embarked on philanthropic ventures aimed at giving people a better grasp of math and how statistics work. He established the Harding Center for Risk Literacy at the Max Planck Institute for Human Development in Berlin and has endowed a chair at Cambridge: the Winton Professorship of the Public Understanding of Risk.

“I’m very much impressed with David Harding’s mission,” says Gerd Gigerenzer, director of the risk literacy center in Berlin. “He wants to give part of his money to science that makes people more competent.”

David Spiegelhalter, the mathematics professor who holds the Cambridge chair, spends his time analyzing statistics in almost every area except finance, but as a man who enjoys the spotlight as much as his benefactor does, he has found some unique ways of demonstrating the point that statistics can mislead. In March, Spiegelhalter agreed to parachute out of an airplane for a BBC special to show that the probability of being killed skydiving is smaller than statistics would have people believe. An examination of multiple variables, says Spiegelhalter, would show additional risk factors for those who were killed, and that is also the case when it comes to examining risk in markets, as the researchers at Winton do. “Philosophically,” says Spiegelhalter, “you can keep refining and refining.”

That is what Harding wants to do with the research his firm is producing: continually refine it so that he and his traders can make the best possible investment decisions. He says that in investing, as in other aspects of life, a deep understanding of statistics will lead to what he calls “making good inferences” as opposed to bad ones. For example, even though he can’t help but enjoy noting that a certain rival fund was down last year, “saying a fund is doing badly just because it was down for a year is a bad inference,” he says. “That’s performance-chasing. A good inference comes from analyzing all of the statistics.”

As for the firm he most admires, Harding still respects the kind of research that Renaissance has produced. “I’d be less successful if Renaissance didn’t exist,” he says. “We’ve managed to imitate certain superficial aspects of Renaissance. We look quite like Renaissance, but we think they’re far ahead of us intellectually. We’re not there yet.”

But he can understand why investors might take issue with the U.S. firm’s insiders-only fund and its famous black-box mystique, and he is determined not to let Winton’s investors experience the same disappointment. When it comes to letting investors and potential investors know that the research is carried out for their benefit, Harding has gone all out to portray Winton as a sort of antidote to Renaissance’s secrecy, and he sees that as an important marketing strategy. “We may be behind Renaissance in our science, but we’re better at marketing,” he declares.

Harding might not disclose specific positions to investors, but he will talk about general research findings and how Winton’s traders are using them. That is to some extent an effort to be different from Renaissance, which has faced investor suspicions that fund managers might be keeping their best trades for the Medallion Fund, long closed to outside investors.

“We’re always going to be a customer management firm, not a prop firm,” says Harding. “The option of closing a fund to outside investors isn’t something I think is ever going to be open to us.”