How Netflix helped create a pair of hedge fund stars

NetflixA decade ago, Netflix held a contest to see who could come up with the best algorithm to improve their recommendation system. The prize was $1 million, and it became an obsession of many data gurus, one that was as much about the solving the problem as getting the cash.

One of these would-be prizewinners was Jaffray Woodriff, a quantitative hedge-funder who found himself pulling eight all-nighters to try and climb to fourth place on the algorithm leaderboard, he told Bloomberg. The problem was that, try as he might, he couldn't unseat the guy in front of him, data scientist David Vogel.

So Woodriff called up Vogel and convinced him that they should team up. They didn't end up winning the prize, and Netflix didn't even end up implementing the algorithm that won. But the contest had sparked an enduring partnership that has seen Woodriff and Vogel become two of the "most successful hedge fund managers in the world," according to Bloomberg.

Woodriff initially hired Vogel as a consultant at his hedge fund, Quantitative Investment Management (QIM), and then invested a 25% stake in when Vogel launched Voloridge Investment Management two years later.

Why did Woodriff want to bring Vogel on board? The Netflix contest.

"It's a sign of potentially being a great trading quant if you're good at machine learning, no matter the domain or discipline," Woodriff told Bloomberg. "That's why I was so confident that David would be good at this."

Though Woodriff and Vogel's funds have a small footprint compared to heavyweights like Two Sigma, their returns are impressive. The pair has funds that regularly return over 20% per year, according to Bloomberg, and Vogel's Voloridge slotted in at third place in Barron's "2016 List: Best 100 Hedge Funds."

And just think, Vogel might not have even gotten into the hedge fund world had it not been for Netflix.

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