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Quantitative Asset Management

Quantitative Asset Management. Quantitative Asset Management. 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

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Quantitative Asset Management

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  1. Quantitative Asset Management

  2. Quantitative Asset Management • 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 • 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 • 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 • 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 • 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 • 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:

  8. Annual Factors (%) 1927-2010

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