I recently sit with Jason HSU, the founder of Rayliant Global Advisors and the chief economist on the west coast of east and west, and evolve the factor investment, the issues facing the asset management industry, and by modern technology and approach. We discussed the opportunity to be provided.
This interview is part of Conversation with Frank Fabozzi and CFA A series sponsored by the research and policy center. The purpose of this series is to lead a major expert in financial and economics to dialogue and explore important issues that form the future of the industry. HSU is a leader in quantitative asset management and a co -founder of a research company. You can register for future conversations with Lori Heinel, CFA, EVP, and Global ChieF Investment Officer of State Street Global Advisors.
In this session, HSU's reflections include the changes in investment paradigm, the increase in pressure on asset managers to distinguish themselves, and more and more competitive and complex environments for navigating, long -term, long -term. We emphasize the important roles of thinking.
Enlarge the universe of the factor
HSU begins with tracking and evolution of factor -based strategies. Initially, these strategies, which were rooted in academic finance, were staple food for facilities and retail investments. The conventional factors such as value, momentum, and size continue to play an important role, but HSU emphasizes the growing appetite to expand the factor's universe.
Today, asset administrators are increasingly adopting action factors promoting macro economic signals such as changes in interest rates and inflation dynamics through market psychology. This expansion of the factor toolkit reflects both market commercialization and the recognition that the conventional factors are still valuable but cannot cope with the complexity of modern financial markets.
One of the important points of HSU is the importance of contacting the factor -based strategy on a clear economic basis. He warns excessive dependence on historical data and data mining approaches lacking theoretical justification. Backtests can have impressive results, but you can get a derived strategy without sure that the fundamental driver's risk will fail under actual conditions.
HSU claims that a robust factor strategy should be built based on the intuitive understanding of how and how to last in a different relationship with empirical evidence. Masu. This combination guarantees that the factors are highly relevant and effective, even if the market dynamics evolve.
Commodity of basic factors strategies is the center theme of HSU discussion. As quantitative tools and techniques make it easier to access, the barriers to the implementation of the conventional factor model are decreasing. As a result, the number of commissions has been reduced and the competition among asset managers has intensified, and pressure has been applied to differentiate companies through innovation.
HSU points out that differentiating often requires a search for new or custom factors, but needs to maintain transparency and adjust according to the client's expectations. Companies must boost the boundaries of innovation, balance the investors to understand and provide reliable strategies.
Structural issues in asset management
HSU also deals with the asset management industry, especially structural issues related to governance and incentives. He criticizes a wide range of short -termism, which controls many investment decisions, and claims that this idea is often the long -term target of institutional investors and retail investors.
The pressure of bringing the quarterly results often leads to a strategy that prioritizes immediate performance over sustainable value creation. HSU advocates the governance structure that is rewarded for long -term thinking and encourages asset managers to focus on providing results that match the wider goals of clients.
The role of technology in re -forming asset management is another important focus in the interview. HSU acknowledges the possibility of changing machine learning and artificial intelligence in modern portfolio management. With these technology, asset managers can clarify complicated patterns, process vast datasets, and develop more sophisticated models.
HSU pays attention to indiscriminate use of technology and emphasizes overdose of risk and interpretation in many machine learning models. Financial, whose decisions often have important results, may not be able to explain the way the model reached the conclusion may impair its practical value.
HSU claims a well -balanced approach to integrating machine learning (ML) with conventional financial and economic theory. ML needs to complement them by improving the understanding of complex relationships and providing new insights, rather than replacing the established methodology. With this integration, the model remains rugged and interpreted, and the strengths of advanced analysis can be used without sacrificing transparency or trust.
Strict data -driven approach to the required ESG
The increase in the outstandingness of the environment, society, and governance (ESG) forms another important theme in conversation with HSU. He is observing that the demand for sustainable investment strategies has increased significantly and is being promoted by both system obligations and social expectations.
However, incorporating ESG considerations into the investment process will specifically quantify the effects of ESG and present its own tasks when integrating into conventional portfoliarium work.
HSU emphasizes the need for a strict and data -driven approach to ESG investment, guarantee that it will exceed the superficial claim and “green wash”. By matching ESG metrics to a wider wider financial goal, asset managers can develop a strategy that can be impacted and economically executed.
Diversity in the investment team is another field where HSU is looking at important opportunities for improvement. He argues that promoting intellectual diversity and encouraging collaboration is essential for success in an evolved asset management environment.
Various teams can bring various perspectives and approaches to solve problems, enhance creativity and adaptability. In an industry where market conditions and client demands are constantly changing, the ability to think critically and promptly adapt is very valuable.
One of the most convincing aspects of conversation with HSU is his debate on issues and opportunities in implementing strategies based on actual market dynamics. He points out that value and momentum are not static, but evolve as the market changes. This evolution requires constant re -evaluation and adaptation of strategy to ensure continuous relevance. HSU emphasizes the importance of stress test factor models under various scenarios and evaluates its robustness and potential vulnerabilities.
Customization is important
HSU also reflects the rising role of customization in asset management. As the client demands more customized solutions, companies need to develop a strategy to deal with specific needs and purpose. This customization often creates a combination of unique factors and integrates non -traditional data sources such as alternative datasets to improve prediction accuracy. By adjusting the client -specific goals and strategies, asset managers can provide greater value and distinguish themselves in competitive markets.
Future of asset management
Interviews will be concluded from the future outlook on the future of asset management. HSU assumes a continuous shift to non -traditional data source technology, customization, and more dependence on integration. He emphasizes the importance of adaptability in both corporate levels and individual teams to navigate the complexity of modern markets. HSU's insight emphasizes the need for an overall asset management approach that combines innovation, strict analysis, and long -term value creation commitments.
