for professional investors larry pohlman bnp paribas asset management the business of quantitative...
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FOR PROFESSIONAL INVESTORS
Larry PohlmanBNP Paribas Asset Management
The Business of Quantitative InvestingThe Business of Quantitative Investing
What is Quantitative Investing?
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Characteristic Characteristic Fundamental Fundamental Technical Technical QuantitativeQuantitative
Approach Approach Value & Growth Value & Growth Momentum Momentum Value & Growth +Value & Growth +MomentumMomentum
Market Market Subset of stocks Subset of stocks Anything Anything All stocksAll stocks
Investment Horizon Investment Horizon Months to years Months to years Minutes to days Minutes to days Days to monthsDays to months
Returns Returns Absolute Absolute Absolute Absolute RelativeRelative
Portfolio Type Portfolio Type Concentrated Concentrated Mixed Mixed Risk controlledRisk controlledSpecialized Specialized BenchmarkedBenchmarkedHedge fund Hedge fund Long/shortLong/short
Active Risk Active Risk High High Low Low MediumMedium
Bookshelf Bookshelf Graham & Dodd Graham & Dodd Edward & McGee Edward & McGee MarkowitzMarkowitzSharpeSharpeGrinoldGrinold & Kahn& Kahn
How Do Quants Add Value?
● Scalability of coverage and uniformity of skill across a broad opportunity set● Focus on risk as well as return
● Ability to employ multiple factors simultaneously
● Efficient distribution of risk budget
● Ability to digest disparate information quickly and translate into actionable recommendations
● Continue to evolve factors and adapt process to changing environments
● Handle special objectives
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Risks Quants Face
● Common factor exposure removes “inefficiencies” and drives commoditization of the industry
● Structural market shifts
● Fundamental investors incorporate benefits of quant
● Data lag and inaccuracies
● False precision
● Difficulty in processing qualitative information
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Industry Research Themes
● Forensic accounting
● Low volatility investing
● Regime switching models
● Questioning capitalization-based models
● Text mining: Quantifying qualitative information
● Data mining
● Advanced optimization
● Dynamic factor models
● High frequency
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What Makes a Great Quant Firm?● Discipline and rigor in process
● Capital markets and accounting expertise
● Unique analytical advantage
● Technological: superior software and data
● Unconventional wisdom
● Focus on efficient execution
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