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Quantitative Asset Management. 24/11/2015 2 Most math departments now offer finance courses 2007  2010: 61% decline in AUM Reflects loss of clients +

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Presentation on theme: "Quantitative Asset Management. 24/11/2015 2 Most math departments now offer finance courses 2007  2010: 61% decline in AUM Reflects loss of clients +"— Presentation transcript:

1 Quantitative Asset Management

2 24/11/2015 2 Most math departments now offer finance courses 2007  2010: 61% decline in AUM Reflects loss of clients + poor performance Different varieties: hedge funds, 130/30, long only They differ in trading frequency/portfolio turnover Quantitative hedge fund 1 in 4 has closed since 2007 Negative impact of Bear Stearns, Lehman (prime brokers for many funds)

3 Recent Criticisms of Quantitative Management 24/11/2015 3 The quant space is too crowd By and large the same story: value, momentum, small tilt Reliance of historical data and similar statistical methods Returns highly correlated and any value added has been competed away

4 LSV’s Response 24/11/2015 4 May 2010 article Research questions: Is there more crowding among quantitative managers compared to discretionary managers? How does the information ratio (industry version) between the two groups compare over time? Does the style (value/momentum..etc.) differ significantly between the two groups?

5 Data 24/11/2015 5  Database: eVestment Alliance, launched in 2000  Monthly data, widely used by consultants in manager searches  Self-reported data, back-filled bias  Long-only institutional managers, large cap, EAFE (i.e., LSV’s universe)  Managers self identify as either fundamental or quantitative  Style is self reported, but consultants will typically perform a holdings-based or returns-based analysis to confirm

6 Summary of Findings 24/11/2015 6 Sample period: 1995-2009 Quantitative AUM US large cap has been stable at ~ 16% Number of quantitative firms Percentage of total stable at ~29% Average pairwise correlation of value added Low and comparable to fundamental managers Dispersion of in performance exists among quantitative managers

7 Summary of Findings 24/11/2015 7 Quantitative managers have bigger exposure to momentum Place a larger weight on momentum in ranking stocks Poor recent relative performance can be explained by this difference to a large extent From Ken French’s data library: Mkt-RfSMBHMLMom 200611.400.5014.34-7.83 2007 2.63-8.21-12.4821.38 2008-39.964.18 1.0113.39 2009 31.587.90-5.15-83.36 201017.9614.02-3.595.85

8 Annual Factors (%) 1927-2010 24/11/2015 8 Mkt-RFSMBHMLRFMom Arithmetic mean8.043.764.873.679.73 Geometric mean5.852.833.923.627.69 S.D.20.9514.2713.973.1115.95

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