Alain Albizzati: "It is necessary to bring more transparency to the process of quantitative fund management"

According to Alain Albizzati, Head of Alternative Investments and Structured Products at Lazard Frères Gestion, private investors and institutional investors do not have the means to perform very advanced "due diligence,", and focus on local and recognized management companies...

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Next Finance: What do you think about the so-called quantitative management, including French quantitative management?

Alain Albizzati: In general, it is a management style that shows good performance in the presence of a relatively high level of volatility. Indeed, hedge funds called "managed futures" or CTA for "commodity trading advisor" tend to see their performance crumble when volatility tends to normalize over historical levels. This is also the reason why this type of strategy has relatively suffered this year, with the return to normal, observed on financial markets. A situation that follows the recent crisis, in particular 2008 with hedge funds posting solid performances.

Regarding the French quantitative management, there are currently on the Paris place, some good managers. But these actors face strong international competition, especially from the Anglo-Saxon countries. I must say that this type of management requires a lot of resources and investment in terms of infrastructure, personnel, but also in research and development, which tends to encourage the flow of underwriting to quantitative managers displaying the most important outstanding assets, able to have the means to succeed.

I prefer managers with a long 'track record', expanded teams and significant outstanding assets.
Alain Albizzati

Many quantitative managers complain about the reluctance of French investors. Are they too sitters? Too cold? Do you need more means to conduct adequate "due diligence,"?

It is true that these quantitative strategies are still little known to traditional investors and require dedicated resources to conduct advanced "due diligence".

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Alain Albizzati

It should be understood that three types of investors are potentially interested in the quantitative management: the traditional private investors and institutional and alternative funds. Lacking the means to perform very sophisticated "due diligence," private investors and institutional prefer local and well-known management companies. They prefer funds with simple management style that is to say with a management philosophy understandable and conform to European regulations (UCITS - "Undertaking for Collective Investment in Transferable Securities"). These criteria are rarely met by quantitative funds, managed on the Paris place.

Funds of funds select managers located either in Paris or abroad. Quantitative strategies benefiting from experience effect (data collection, model development) and requiring significant investments in research and infrastructure, I prefer managers with a long "track record", expanded teams and significant outstanding assets.

Quantitative managers allow avoiding potential behavioral biases of discretionary managers. Clearly, take profits too quickly on a winning position or keep too long a losing position.
Alain Albizzati

What do we need today to generate more interest from French institutional? Do Quantitative managers have to be more educated?

Beyond a better adaptation of legal formats to the investors needs, I think we need to bring more transparency to the process of quantitative fund management often akin to a kind of "black boxes" to potential customers. However, this type of funds, with their style of flexible portfolio allocation, rigorous risks management and their method of "market timing" through various techniques of "trend following" allow avoiding the possible behavioral biases of discretionary managers. Clearly, quickly taking their profits on a winning position and too long to close a losing position; two cases to be avoided at all costs where a quantitative manager acted exactly the opposite. As can be understood, quantitative managers must undoubtedly show greater education among individual investors to attract more interest from them.

RF December 2012

Article also available in : English EN | français FR




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