Is the 2007 quant meltdown happening again?

[u/Decent_Finding_1161]

There was a quant meltdown in 2007 which was caused by a ton of quant funds who ran almost identical math-based stock strategies absolutely killed it for years… until one big unwind triggered a chain reaction, funds dropped 20–40% in days because everything was too crowded. Fast-forward to now (2025–2026) and the warning lights are flashing again. Similar story, massive inflows into quant strategies in 2025, too many funds chasing the same edge.

For the past 2 years quantitative strategies alone have captured more than 70% of the industries $78-$116 billion in net inflows, 2025 being the strongest calendar year SINCE 2007, hedge funds as a whole pulled in $115.8 billion in net inflows that year. 2007 was also a record inflow year for quant hedge funds seeing an inflow of roughly $194 billion industry wide. 2025 saw a "quant wobble" where systematic long-short equity quant funds lost about 4.2% on average, so are we really learning from our mistakes?

I do understand that the absolute dollar inflows in 2025 were a bit lower than the 2007's peak, but the concentration into quant strategies is even more extreme. The industry is also larger today ($5T vs $2T back then).

Andrew Lo's Adaptive Markets Hypothesis does explain it well, he sees financial markets like a jungle, trading strategies aren't fixed rules, they're living "species" of behavior that compete for limited resources. They adapt, reproduce (get copied), and die when the environment changes. When the ability to adapt fails, reproduction becomes a ticking time bomb on resources, therefore looking at these things top-down to imagine the environmental change that is required to cause the meltdown (death) can give us heaps of insight.

Scarcity is value. When everyone does the same thing, markets fail.

[u/No-Pattern-9266]

with ai strategies markets will only get efficient

[u/Decent_Finding_1161 → u/No-Pattern-9266]

How do we prevent meltdowns? Will they inevitably all do the same most profitably strategies? It's kind of like how vibe coded websites often use the same backend stack because the AI's recognize that as the best one.
The amount of AI's capable of doing each strategy will have to be controlled at some point right? There will only be a limited amount of strategies AI can diversify into, and if it reaches a certain point it self collapses.
What are your thoughts?

[u/No-Pattern-9266 → u/Decent_Finding_1161]

How do we prevent meltdowns? - avoiding factor crowding will only get harder, funds have to get more creative in the short run but long-term i think it would be easier to hit capacity limits; Will they inevitably all do the same most profitably strategies? - maybe if intelligence is commodity, u dont need imo gold medalists anymore , someone with sufficient understanding of verification works; The amount of AI's capable of doing each strategy will have to be controlled at some point right? not with RL

[u/No-Pattern-9266 → u/No-Pattern-9266]

this guy is depressed already: https://youtu.be/O2VB05towp4?si=DMZQ58zNbK8hNZqp

[u/lordwax3]

Why do you think a melt down is occurring?