Larry Pohlman BNP Paribas Asset Management

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Larry PohlmanBNP Paribas Asset Management
The Business of Quantitative Investing
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What is Quantitative Investing?
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03/11/2013

• Characteristic Fundamental Technical
  Quantitative
• Approach Value Growth Momentum Value
  Growth Momentum
• Market Subset of stocks Anything All stocks
• Investment Horizon Months to years Minutes to
  days Days to months
• Returns Absolute Absolute Relative
• Portfolio Type Concentrated Mixed Risk
  controlled Specialized Benchmarked Hedge
  fund Long/short
• Active Risk High Low Medium
• Bookshelf Graham Dodd Edward McGee
  Markowitz Sharpe Grinold Kahn

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How Do Quants Add Value?
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03/11/2013

• 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
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03/11/2013

• 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
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03/11/2013
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• 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?
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03/11/2013

• Discipline and rigor in process
• Capital markets and accounting expertise
• Unique analytical advantage
• Technological superior software and data
• Unconventional wisdom
• Focus on efficient execution