Stephen - the author doesn't get updates on a minute-to-minute basis on their allocation and performance, but they will get frequent updates. Also, the calculation of the royalty payments will be certified by third-party auditor.
Grant - It's probably better to describe the person as the author, not the manager. Quantopian is the manager. Quantopian and Quantopian's clients are bearing the risks of the investment. In the business relationship, the author isn't taking on any financial risk. It's a mutually beneficent relationship where the author provides valuable intellectual property to Quantopian in exchange for a share in any resulting net profits.
It's fair to say that using leverage increases risk, but it's only one factor. If you have poor risk management you can blow up at 1X leverage. If you have good risk management you can take advantage of many different financial tools, and leverage is one of them. In this case, leverage can be used safely to potentially increase the returns for the investor and for the author.
As for managing leverage, part of the due-diligence process I've described earlier in this thread includes making sure the algorithm consistently runs at 1X leverage.
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