Princeton Newport Partners
Thorp's hedge fund — one of the earliest and most successful quantitative funds, run for nearly two decades with a remarkably consistent track record.
In 1969, Thorp co-founded Princeton Newport Partners, widely regarded as one of the first quantitative hedge funds, applying his warrant/option arbitrage models and Kelly-based position sizing at institutional scale. The book describes the fund's remarkable track record — positive returns in nearly every year of its roughly two-decade existence, with notably lower volatility than the broader stock market, achieved specifically through market-neutral strategies designed to profit from pricing inefficiencies rather than from broad market direction.
Thorp describes building and continually refining the fund's computer models as markets evolved and as more sophisticated pricing (including the eventual publication of Black-Scholes) became widely available to competitors — a recurring theme being that a quantitative edge, once discovered, tends to erode as others adopt similar methods, requiring continuous refinement and the pursuit of new inefficiencies rather than resting on an edge that worked in the past, the same shrinking-edge dynamic this Book Club's When Genius Failed course describes happening to LTCM's convergence trades.
Thorp frames the fund's achievement less around the absolute size of its returns and more around the combination of strong returns with unusually low volatility and drawdowns relative to the broader market — a direct, practical demonstration of the Kelly-based risk discipline from earlier in this course actually working at real institutional scale over a long period, not just in theory or in a single casino trip. This combination — strong long-run performance without the severe drawdowns that eventually destroyed a fund like LTCM — is presented as the direct payoff of decades of consistent position-sizing discipline rather than any single brilliant trade.
- Princeton Newport Partners, founded 1969, was one of the earliest quantitative hedge funds, running market-neutral warrant/option arbitrage strategies.
- It delivered strong returns with notably low volatility across nearly two decades — a real-world, large-scale demonstration of Kelly-based risk discipline.
- A discovered quantitative edge tends to erode as competitors adopt similar methods, requiring continuous refinement rather than resting on past success.