One year after taking the helm at US quant manager QMA, Andrew Dyson may be on a charm offensive but he is sceptical of some trends sweeping the investment industry.
The Newark-based quantitative investment specialist, that can trace its roots back to 1975 and currently has about $140 billion under management, is making strides to grow its nascent European business and move into previously untapped regions.
The chairman and chief executive of QMA, part of US giant PGIM, said the company’s returns stand-up to that of its peers but always part of the challenge is perception.
Dyson told Global Investor: “The performance is good, over 90% of our equities and over 80% of our multi-asset strategies are ahead of the index over five years but, as with all quant managers, it’s hard for us to differentiate ourselves. We have started doing that however - we have started having more conversations.”
Dyson believes there is growing European demand for factor-based investing, QMA’s speciality.
He told Global Investor: “There is a lot of interest in factor-based investing but our approach to factor investing is more sophisticated. As a multi-factor based equity manager, this is a very good market for us to be playing in. Factor-based investing is building traction in Scandinavia, Germany, the Netherlands and the UK for example as investors are realising they can beat the index by tilting to factors. But why stop there? Managing multi-factors dynamically offers still better performance.”
Dyson joined QMA in early 2017 from Affiliated Managers Group, the US firm that owns stakes in various investment firms, where he was executive vice president responsible for managing the company’s central global distribution platform.
He was previously head of BlackRock’s Global Institutional Client Business.
In November last year, Dyson hired to spearhead his international push former Blackrock colleague John Gee-Grant who assumed the new role of head of international distribution and global consultant relations.
London-based Gee-Grant reports to Adam Broder, head of global distribution for QMA who himself joined the firm in October 2017.
Broder said on the Gee-Grant appointment: “John’s deep knowledge of client investment needs—and global experience at the world’s largest asset management company—will help us to strengthen current relationships and build new ones as we look to grow our footprint in a rapidly evolving world.”
For his part, Dyson told Global Investor he joined QMA partly to tap the increasing demand for quantitative investment models.
“Quant funds are undoubtedly a growth area in the industry and this was one of the reasons I was attracted to QMA. QMA also has a very good investment engine though I think it is fair to say it is under-developed commercially.”
QMA is a multi-factor quantitative fund manager that complies with the PGIM philosophy of investing over the long-term.
“PGIM is one of the world’s top multi-boutique managers and it conforms to my personal perspective that for active management to succeed, an investment management firm needs to be run with a long-term culture and mind-set.”
Dyson said he is sure longer term investment is more effective than working money over shorter periods.
He said: “There are firms looking for short-term trends but they don’t have the same intrinsic drivers. Some people have built fantastic businesses looking at short-term trends but I have a problem with the idea that people jump on that train but, the moment it stops working, they jump off.
“And, the more people that look to short-term investing, the less effective it becomes, so the half-life is getting shorter. With high-turnover strategies also, it is expensive to get in and out so they are a net negative sum game,” Dyson added.
The QMA head went on to argue that pension funds are essentially a long-term investment vehicle that should think long-term, whereas some funds appear to be happy to chop and change.
“The more people adopt short-term strategies, the harder and more expensive they become to pursue,” said Dyson. “One thing this industry is very good at, is jumping on a bandwagon, and there is currently a band-wagon feel about quants.”
Dyson said QMA is also resistant to changing the factors it uses to gauge the performance of individual firms.
“We have a policy of not adding any new signals unless they add value and we use some 14 diversified signals as we have discovered that a combination of signals is more effective over time than an individual one.”
Talking of band-wagons, Dyson is also sceptical about traditional money managers trying to pass themselves off as quants.
“We’ve been running money for 40 years, so we can genuinely claim to be a pioneer in this field. But, all of sudden, we are seeing fundamental managers discovering long-forgotten quant desk and dusting them down. Now everyone is saying they are a quant but no-one is creating a taxonomy around what it means to be a quant,” he said.
“If you’re not using quant data, you are a dinosaur, but quant data doesn’t make you a quant manager. People will claim they have quant data but they could be buying that so where is their competitive advantage? It is important to separate the data and the decision, and to separate what data is proprietary and what is not.”
Dyson agrees that artificial intelligence and machine learning (two other hot topics in the fund management industry) are interesting but insists their potential is currently limited.
“Artificial Intelligence and Machine Learning have generated an almost bubble-like fervour. AI is simply a pattern-recognition technique but nine out of ten of them have no predictive power. Using AI to find signals is very different to using it for stock selection. AI has even been called a quant strategy but we, as an industry, need to be better at using it,” he said.
Dyson also has a nuanced view of another buy-side cause celebre. “Big data is not the panacea that some people might think it is but it does open up some interesting signals. We are looking at ‘news-scraping’ for example, where we look at the balance between good and bad news. This is sort of a momentum signal but a different sort of momentum.”
The QMA chair and chief said the PGIM boutique plans to launch its own Environmental, Social & Governance fund in the second quarter of this year and has already embedded governance issues in one of its key factors.
“Under our quality factor, we look at various themes such as management action, governance and the make-up of the board - including how long directors have been in place. We have established that if the board is too new, they may not know enough to challenge management but, similarly, if the board has been in place too long, they may be captured by management and old-fashioned thinking,” he said.
The QMA chairman and chief executive said he plans to leverage the resources of its vast parent to help him promote firm in Europe, Asia and beyond.
“One of the nice things about PGIM is that it has local client teams in many major markets so we can partner with these teams on the ground without having to establish our own presence,” Dyson concluded.