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NKL: What are the personal traits that a good researcher should have in order to have a chance to come and work for a firm like yours?


ML: Yeah. It’s a great question. I think that one of the lessons along the way is that the cultural piece is more important than you might think. I think that that has ... along the way we’ve hired a lot of people, and a lot of people have left and the core team that we have, and now they’re really experienced. I think that the average tenure with Aspect of my core research team is over seven years, some of them well over 10 years. I’d say two things in answer to your question. First of all we don’t... there isn’t a graduate intake. We aren’t just hoovering up PhDs willy-nilly. I think we have certain targeted hires, where we may have determined that we need a skill-set. So, for example, we needed some statistical muscle, and we went out and we hired someone who is just the most fantastic statistician I’ve certainly ever come across. In terms of bringing in junior folks, I think it’s... obviously these days the qualifications are certainly more than Michael, David, and I had in terms of PhDs and finance and programming skills. It’s an attitude, and it’s a cultural fit that are the most important features.


NKL: I guess, it’s the three Cs: the Character, the Competence and the Chemistry, when you want to put together a strong team. On that theme, how do you build a strong culture in an organization?


ML: I think that’s a great question, and I can say it, I can talk to it because I’ve made mistakes along the way. I think that the nature of what we all do in the asset management space lends itself to, how can I put this delicately... to individuals. There’s the cult of the individual. Whether people start to believe their own hype or investors want to believe the hype. Couple that characteristic with the fact that once upon a time... every business has to start somewhere, and if you’re successful, you might believe your own success. Where I’m going is that it’s hard for a business to make the transition from being very much top-down, character-led, so I’m going to tell you lot what we’re going to research today. Making the transition from that to a genuinely academic multi- disciplinary collegiate research effort – that’s actually a harder transition than it may sound, and people may overlook that.


So your ability to build a team and to trust and to delegate, trust and verify, to build that robust team is essential to creating longevity in the programme. You can come up with a fantastic system, but I think the real tribute to AHL, to Winton, to Aspect, is these businesses have continued to evolve. It’s more the research process that we’ve all subscribed to rather than the genius of the individual model or any component piece along the way.


NKL: Speaking on longevity, you’ve also had a very long partnership with key individuals, and I wonder what is the recipe of keeping a partnership going for such a long time? Like in a marriage it takes an effort to keep things alive and well.


ML: Well, so Michael, David, and I all ran into one another and we made it work. We were the three musketeers taking on the world, or taking on the Man group. Man were absolutely great partners, but just at that stage we needed someone to focus our ire on. The point I’m making is that actually through the transition when we went our separate ways, and then David did his thing at Winton and we formed Aspect, I remember Anthony and Eugene and I and Michael just said, look, we have a chance to build something great and let’s do it with the people that we want to work with. So we haven’t gotten it right every time. You said the three Cs. You sometimes take your eye off the ball and the chemistry isn’t right, but by-and-large, Niels, I think it’s about the people that you choose to work with. Then it’s about commitment. I’m sure Anthony could have killed me at various times along the way and vice versa. You keep going, and it has been a tremendous experience.


NKL: Absolutely. I want to shift gears a little bit now. We’ve talked about the organization and what sort of underlies your success on that side, but I want to talk also now about the track record. My contention is that investors often look at a track record of a manager and they think, “Oh, so this is what I am going to get in the future.” Of course we know that, as you rightly said before, programmes evolve and therefore a track record isn’t necessarily meaningful in the current form, and I would argue maybe that, to get a better feel, you should ask for a back-test of the current configuration of any system, but usually that is not easily available.


ML: Yeah. Great question – I think if I’m sitting with a potential investor or an investor who may be struggling with recent performance compared to what they might have expected. I am, first of all, at pains to point out that the length of the track record, of Aspect and of AHL before that and of Brockham Securities before that, is more a testament to two things: one to the persistence of predominantly trend-following models, the persistence and the ability to capture positive returns in multiple economic scenarios. That’s sort of big take-away point number one. The big take-away point two is that it is what you say, it’s an evolving process. It’s a business. The analogy I use for our research team and the research process is (so maybe this would have been a better answer to the lady at that dinner table) is it’s much akin to pharmaceutical research. Not that I’ve ever worked in pharmaceuticals, but the point there is that at one level you look at Sandoz or Novartis or something like that and you get a sense of how good that business is


at developing new drugs and how good are they both medically, and how good are they at exploiting them commercially. But meanwhile in the bowels of the business, it’s not just one drug. You don’t just say how good... tell me about that one anti-cholesterol drug. It’s a pipeline, a pipeline of products, so the drugs in and of themselves at any time are important and are generating the revenue when you take a snapshot of the business, but they continue to evolve.


NKL: What have been the biggest changes over time and is it really small incremental changes, or is there something where you look back and you say in the last 15 years, 2008, or 2009, or whatever it might be, we did actually discover something that we would say that was a big upgrade or that was a big find – key finding?


ML: By and large it is very much an incremental process and we make a virtue of that because you don’t want – the last thing we want to do, especially with our focus on institutional investors and a high level of transparency, the last thing you want to do is surprise an investor. With the benefit of hindsight, I highlight two particular features about the evolution of the approach. First, in an odd way... the first, Niels, is the importance of risk management and portfolio construction. I think this is something that investors and maybe managers that haven’t been doing it for that long may underestimate the importance of in the process, and again I’m saying this because I did [laughs]. After all of the shenanigans of looking at chartism and distilling it down into fundamental tech models, you come up with a pretty robust diversified set of medium-term trend following models, or we did anyway.


The neat thing in the 1980s was the range of markets that have sprung up around us, Niels, afforded us a level of diversification that essentially... the combination of trend-following across that range of markets it risk-managed itself. You didn’t have correlated risk shocks. You didn’t have ... there was enough intrinsic diversification that if one sector was melting down you’d have opportunities in another sector. Risk management... I couldn’t spell risk at the time. Then a couple of things happened. First of all (I’m going to foreshorten this) you got to an era where I think some of those trend-following models became less efficient. You got to an era where markets did become more homogenous, so there’s both a sort of macro effect as your pension fund manager in Japan begins to hold a similar-looking portfolio to your pension fund manager in Sacramento. Whereas, once upon a time they didn’t; it was much more parochial. You begin to get a greater coherence of both investor holdings and then also with the advent of VaR metrics and that approach to risk management, you also got a more correlated response to events, so that everyone around the world who thought they were doing


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