We are a quantitative finance shop, right down to the ground. All of our portfolios are driven by supervised quantitative models with no discretionary intervention. As such, I was inspired to respond to a recent article on the risk of quant strategies, as I think the way our team approaches quantitative research diverges from how many outsiders perceive quant, and also from how many quantitative shops work.
The goal of this missive was to demonstrate that, when it comes to alpha, where you stand depends profoundly on where you sit. Different investors with varying levels of knowledge, experience, access, and operational expertise will interpret different products and strategies as delivering different magnitudes of value added. At each point, an investor may be theoretically ‘better off’ from adding even simple strategies to the mix, perhaps at lower fees, and even after a guiding Advisor extracts a reasonable fee on top. More experienced investors may be able to harness a broader array of risk premia directly, and thus be willing to pay for a smaller set of more exotic risk premia. It turns out that ‘alpha’ is a remarkably personal statistic after all.