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Faith in computer-driven funds shaken as top trader suffers loss

Philanthropic financier who inspired bestselling novel sees value of his $10bn fund plunge 3.5 per cent in 2012

David Harding, the Cambridge physicist turned super computer trader, has some explaining to do to his extremely wealthy clients after recording a rare plunge in the value of his fund.

The entrepreneur and philanthropist, said by some to be the hedge fund hero on which the lead character in Robert Harris's best-selling Fear Index was based, saw his $10bn (£6bn) Winton Futures Fund lose 3.5 per cent last year.

That's only its second ever annual loss since launch in 1997. While that's an impressive record, it will raise questions among investors about whether Mr Harding's venture is as infallible as it had previously seemed.

Mr Harding is one of a new breed of investors who devises software programs to trade markets, setting up banks of computers to follow trends in markets often at high speed.

Figures reported by Bloomberg today show that the whole computer trading industry – often called quant trading – had a tough 2012, suggesting that their ability to beat markets with such apparent ease may be a blip.

The value of the quant funds, which have attracted more than $100bn of investor funds since 2008, fell by 3.4 per cent in 2012 after a 7.9 per cent slump in 2011, figures from the broker Newedge revealed.

The computer-driven funds were blind-sided by market uncertainty caused by Europe's sovereign debt crisis and the US fiscal cliff talks, experts said, raising fears that investors may now pull out billions in funds.

Mr Harding, who is Britain's second wealthiest hedge fund manager with an estimated £900m fortune, is also known for making donations through his Winton Charitable Foundation.

A spokesman for Mr Harding played down suggestions that computer-driven hedge funds were a thing of the past. "It's always disappointing when we're down, but it's important to remember that this is only the second time it has happened in 16 years," he said.

One hedge fund under intense pressure to improve its performance is Man Group, which endured a torrid 2012. The company's $17bn AHL computer-driven fund has been blamed for the company's poor recent performance. Its flagship AHL Diversified Fund fell 2.1 per cent last year.

Peter Clarke, Man Group's chief executive, announced his departure last month after the company's third-quarter results showed outflows had surged 57 per cent in stark contrast to its 2007 and 2008 highs. Mr Clarke leaves in February and will be replaced by Manny Roman.

Jason Streets, an analyst at Jefferies, predicted that 2013 could be just as bad. He said: "October, November and December all saw continued outflows in AHL … we see no reason not to expect this trend to continue as a central expectation. The story remains unenticing to our eyes."