The MIT Investment Conference was held a few weeks ago here in Cambridge. The event is one of the largest student-run investment conferences in the country. More than 400 people attended the 2019 conference, including leading representatives from major investment firms, academics, and innovators in the field of finance.
The conference welcomed some of the brightest minds in their fields to share “The Investor’s Perspective”. Notable speakers included Gary Gennsler (former Chairman of the Commodity Futures Trading Commission (CFTC) and former Assistant Secretary of the Treasury for Financial Markets) and Jeffrey Shames (former Chairman & CEO of MFS Investment Management). Panel representatives from Fidelity Investments, AQR Capital Management, and Cambridge Associates shared interesting perspectives on asset allocation. Forge.AI co-founder and Chief Operating Officer Jennifer Lum was among those minds, and brought her insights to discussions of the changing world of AI in Investment Management.
Below are some summaries of the panels, and the salient points discussed therein.
From Left to Right: Robert Furdak of Man Numeric Investors, Maria Mähl of Arabesque Asset Management, George Mussalli of PanAgora, Michael Deaddio of WorldQuant, and Barry Ritholtz of Ritholtz Wealth Management
“Mind and Machine: Frontiers of Quantitative Investing”
- Barry Ritholtz, Chief Investment Officer of Ritholtz Wealth Management, Bloomberg columnist and contributor, host of podcast Masters in Business
Michael Deaddio, President and COO, WorldQuant
Robert Furdak, CIO, Man Numeric Investors
Maria Mähl, Partner & Head of Nordics, Arabesque Asset Management
George Mussalli, CFA, CIO and Head of Research (Equity), PanAgora Asset Management
“Discussions on the challenges and trends impacting quantitative investing. This will include deliberations on alternative data sources, as well as the need for young talent to have coding backgrounds, even for fundamental strategies.”
Summary of Panel Discussion:
This panel explored the frontiers of quant investing. Perhaps most intriguing to those of us at Forge.AI was the discussion of unstructured data. As Michael Deaddio of WorldQuant stated: “Unstructured data; that is the challenge. Making it structured and relating it to things I can trade. Finding the data is not the problem: making it tradable is.”
Ten years ago, 50% of data was fundamental, now it’s only 30%. Through social media, news, and mobile phone tracking, the unstructured data of daily behavior has become a commodity. We are all a data source now, every time we use our phones we are generating data.
Currently, there are over 10,000 articles being published per day: these articles can be a source of alpha if AI is properly trained to use it. We also have 100 years of price and volume data: enough that there’s statistical significance in looking back at it.
The panel was asked: what makes quant investing so different from other forms of investing?
The panelists gave a few answers to this question:
You need to have conviction in your investments, especially when things are going against you. That’s a key component of quant investing.
The data is statistical in nature. One panelist pointed out that quant investments cannot be understood through the lens of individual (human) answers; instead, these investments focus on statistical odds.
There are some key benefits to quant investing that might not be seen elsewhere. The biggest of these, according to the panel, is objectivity. When statistical odds become your primary source of decision making, it takes emotion out of the equation.
As panel members enumerated, quant investing allows its users to:
Be dispassionate, and make decisions based on facts
Focus on data and sources of data, not just financial statements or volume
Establish clear lines of risk, which can be taken into account in the portfolio
Incorporate translation costs and microstructure in decision making
“Being a Farmer in a World of Hunters: Fireside Chat Featuring Tom Russo”
- Ted Seides, CIO of the Perch Bay Group, co-founder of Protégé Partners, and host of the Capital Allocators podcast
- Named one of the “world’s greatest investors” by MoneyWeek magazine, Tom Russo (Managing Member, Gardner Russo & Gardner) spoke at MIT about his investment approach and lessons he has learned in his illustrious career.
Summary of discussion:
Tom Russo spoke of his focus on in investing in consumer brands. Increasingly, Mr. Russo has begun to favor family-controlled companies. He described public companies as “tough,” citing their focus on short-term profits, and interest in protecting management from Wall Street.
As he captivated his audience with his own investment strategies, Mr. Russo also spoke of his inspirations. He walked the conference attendees through things he has learned from Warren Buffet:
Take advantage of non-taxable unrealized gains
Think about long term holdings; capacity to suffer is essential as a long term investor
Consider the capacity to reinvest; the value of compounding. It is not enough to buy something appropriately priced; instead, the best way to reinvest is to expand into emerging areas of the world
Per Mr. Russo, agency costs are the most important thing that Warren Buffet got right. Buffet moved away from publicly-owned, and toward privately-owned companies, focusing on businesses still run by the families that have run them forever. The families who owned these companies shifted ownership to Mr. Buffet and do not hold stock options. Stock options can lead to a toxic environment. Per Mr. Russo: Find businesses that don’t corrode over agency costs. Find agency-free investments.
Finally, Mr. Russo reminded his audience that, when investing, it’s important to know your long-term goals. Remember, he told us, not to “cut flowers and water weeds”.
From Left to Right: SJ Maxted of The Engine, Kirstan Barnett of KBB Capital, Dave Balter of Flipside Crypto, and Jennifer Lum of Forge.AI
“From Platforms to CrypoCoins: Building and Funding the Industries of Tomorrow”
- SJ Maxted, Director of Strategic Initiatives, The Engine
Jennifer Lum, COO and Co-Founder, Forge.AI
Dave Balter, CEO, Flipside Crypto
Kirstan Barnett, General Partner, KBB Capital
- “A panel of entrepreneurs and venture capitalists discuss the technologies reshaping our world, including e-payments, autonomous driving, artificial intelligence, machine learning, and robotics.”
Summary of Panel Discussion:
The panelists were asked about artificial intelligence and crypto, their role in investment management and finance. Are the opportunities changing? Growing?
Jennifer Lum (Forge.AI) responded: “There is a considerable amount of AI/ML research and evaluation happening across the Financial Services industry and interesting applications are starting to emerge in Investment Management and Risk Management. Top tier financial institutions are now successfully competing for the best technical talent alongside companies like Google and Facebook. Many firms have successfully leveraged ML to automate routine operational tasks. We are most excited about partnering with firms to harness machine intelligence to uncover new opportunities and to accelerate their ability to take action.”
Building on Ms. Lum’s assessment, the panel was asked about the current state of crypto; how has it impacted their businesses, and changed the path ahead?
Dave Balter (Flipside Crypto) responded: “I'm still of the mind that the "crash" in prices was the best possible thing that could happen to this industry. It reduced FOMO behaviors, it forced regulatory oversight of ICOs and allowed the industry to return to focusing on building vs. managing speculators. We're already seeing major initiatives become realities in 2019; by 2020 you're going to see the second wave of applications integrating into our daily lives.”
The crypto winter of 2018 was a major topic of concern for all the panelists. Although the bear market had an impact on crypto markets as a whole, the consensus on the panel was that the winter had taught the industry some valuable lessons.
Kirstan Barnett (KBB Capital) spoke to this when she said: “I agree with Dave on the crash. The “crypto winter” that we saw in 2018 has grabbed most of the headlines, but those who are committed to the space are focused on the number of high quality entrants to the market. We are actually in a very productive phase right now. There are committed, deep-pocketed and serious infrastructure builders (like Fidelity here in Boston) who are working on solving all of the important issues to the market - scalability, privacy/security, custody, volatility, interoperability. Separately, on the token front, we are going to see growth in stablecoins this year - JP Morgan, Facebook, etc.”
In a 40 minute session, the panelists discussed major issues and concerns in their industry, but they did so with a clear vision for the future. In each case, the companies were thinking about how to use the lessons of the past and current industry dynamics, to inform the future.
The 2019 MIT Sloan Investment Conference provided attendees with a solid overview of how top investors are thinking about trends, opportunities, and challenges across asset classes and investment strategies. We were delighted to participate in the conference, and we look forward next year’s event.