Leigh Drogen - Sink or Swim--How to Combine Quant and Traditional Asset Management Techniques - Invest Like the Best, EP.48]

Several weeks ago my conversation with Leigh Drogen on quant investing proved timely and popular--because everyone in asset management is facing the rise of big data, and the use of data science in investing strategies. Because of the rise of quants, many are asking themselves how to survive and thrive in a changing industry. In short, how can traditional managers compete with quants? This second conversation with Leigh was set up to answer many of the questions posed in the first one. If quants are taking over, what should other investors do about it? Leigh proposes a method by which old school asset managers can restructure their thinking and their process to compete with and even beat purely quantitative competitors. The method involves pulling the best from both worlds and combining them into a hybrid structure. But it will be impossible without a wholesale change in mindset, which is where we begin. Please enjoy round two with Leigh Drogen. Links Referenced Revenge of the Humans Part II: A New Blueprint For Discretionary Management Show Notes 2:14 – (First question) – What role will ego and mindset play for traditional hedge funds looking to transition into quantitative investing strategies 4:21 – Describes the traditional process that hedge funds use to make investment decisions and how the internal politics can hamper it 6:08 – What value has portfolio managers played at hedge funds traditionally as the quarterback of a fund 9:57 – A look at what Leigh has seen as he sits with teams 12:20 – A look at places that have tried to simply add quant to their firm’s strategies without “tearing it down to the studs” and properly integrating them into the process 15:00 – Leigh is asked to define the basics of a good investment firm’s strategies 16:57 – Strategies for writing down core beliefs, whether it’s for yourself or your firm 17:49 – Exploring the second step, finding a differentiating view and how to succeed with it. 21:43 – The importance of force ranking and structuring the unstructured 26:14 – Building factor models 29:42 – How the portfolio manager position should have less room for subjectivity than at the analyst level 33:44 – Is anyone integrating this kind of high level data at the portfolio manager level into the decision making the way Leigh describes 35:07 – What blind spots are created by systematizing their processes 36:18 – Why much of this applies more to shorter and structured periods 38:23 – Shifting to portfolio constructions and what Leigh would do to create the right mix 43:39 – Shifting to management structures in these firms starting with the role of the CIO 45:24 – Looking at the different quant roles that exist in a firm and what they should be responsible for; data engineers, data analysts, pure quants, and quantitative engineer 48:20 – If you are an undergrad or grad student right now interested in asset management, what are the roles you should be thinking about targeting 49:25 – Why communication skills are still so important, no matter what role you are in 50:25 – With all of the tools and skills that Leigh has at his disposal at Estimize, why not institute an active strategy 52:01 – What has Leigh observed in the dispersion of skill in the Estimized data set 53:47 – What is the relationship between specialization and accuracy among funds 55:29 – The pros and cons of the generalist 56:56 – A look at Leigh’s background into War Theory and what lessons that he still draws on today 1:00:19 – How the field of study around war and battle relates to the investing world Learn More For more episodes go to InvestorFieldGuide.com/podcast. For complete shownotes, go to InvestorFieldGuide.com/leigh. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag