FOR PROFESSIONAL INVESTORS The Business of Quantitative Investing Larry Pohlman BNP Paribas Asset Management | 13/04/2015 | 2 What is Quantitative Investing? | 13/04/2015 | 3 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 | 13/04/2015 | 4 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 | 13/04/2015 | 5 5 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 | 13/04/2015 | 6 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