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The analogy has never been more true than right now. Tarrant is beginning to explore hedge funds built on ideas that have sparked so many companies and created so much wealth in Silicon Valley—ideas that span artificial intelligence, crowdsourcing, and digital currencies. He believes the hedge fund world is on the verge of a new revolution, a revolution he calls the Third Wave.

Hedge funds are moving beyond the quants.

The 1970s saw the rise of discretionary funds, where iconic investors like George Soros used their very human judgments to find new opportunities in the market. Then came the "quants" at funds like Renaissance Technologies, who found even greater opportunities through statistics and computer algorithms. Now, Tarrant says hedge funds are moving beyond the quants.

As a prime example, he cites Numerai, a San Francisco hedge fund that makes trades using machine learning models built by thousands of anonymous data scientists paid in bitcoin. Funds such as Quantopian and Quantiacs are tapping the wisdom of the masses in other ways. And then there's Polychain, a fund that invests exclusively in bitcoin and other digital "tokens" housed on a blockchain, the distributed online ledger that makes cryptocurrencies possible. As its name suggests, Polychain isn't just investing in digital coins—it's investing in a radically new breed of businesses owned, funded, and operated entirely by decentralized networks of anonymous online investors.

Such funds aren't always easy to wrap your head around. But as Wall Street tries to make sense of them, these new tech-driven approaches to investing are proliferating. In the late `90s, Tarrant helped build an online directory of hedge funds called AltVest. Now, he's building a directory for this new wave of funds. It includes roughly fifty players, many of whom have yet to publicly announce themselves—though Tarrant admits that only about half have demonstrated real promise so far.