Quantitative

Investment Strategies
Special report 2019 Risk.net

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Opinion
Outperformance
in an evolving and
growing landscape
Q
uantitative investment strategies (QIS) open up a new frontier for
asset managers, allowing investors to acquire diversified returns
thanks to a combination of rigorous financial research and
advanced technical capabilities.
This report surveys the QIS landscape, defining the range of investment
strategies under the QIS label and delving into how and why they can
provide outperformance. It also analyses the means by which investors can
access these strategies and the challenges associated with gauging their
integrity and benchmarking their performance.
The report also peeks behind the scenes at a leading QIS vendor to break
down the various stages of development that go into making an effective QIS
product, as well as a leading analytics platform used by the sell side and buy
side alike to compare and contrast different strategies.
Quantitative strategies are gaining prevalence among asset managers
under pressure to generate absolute returns at lower costs for investors.
Traditional hedge fund allocations are out of favour as a result of prolonged
underperformance and high fees, yet investors still crave the uncorrelated
returns they can provide. QIS offers these exposures through rules-based
asset allocation mechanisms rooted in well-evidenced financial research and
readily explained to investment management boards – unlike often opaque
hedge fund mandates – and at a fraction of the cost.
This report eliminates any misconceptions about these strategies by clearly
laying out what they can provide – diversified returns over the long term –
and what they cannot: alpha without risk.
Readers will also be better equipped to navigate the growing QIS
inventory. Investors have an abundance of choice when it comes to QIS
products, from vanilla single-factor, long-only strategies to multi-factor,
multi-asset and long/short variants.
Defining an investment objective is the first step of any selection exercise,
but determining which QIS is best suited to fulfil this requires a granular
understanding of how risk premia derive their returns, the degree to which
these correlate with the market, the nature of their idiosyncratic cycles and
the ways they slot into portfolio construction.
Depending on the objective, an asset manager could choose one of a
number of QIS to replace its hedge fund allocation, or build up a portfolio of
strategies with negative correlation to its existing equity and/or credit
exposures. Virtually all goals can be pursued through QIS, but asset
managers need to understand the capabilities and limitations of the available
products before putting money down.
The evolution of QIS is accelerating. This report offers a helpful guide to this
rapidly changing asset class and can assist managers in making informed
choices when adding these products to their portfolios.
risk.net 1
 Contents

3 Interview 4 Strategy selection

Volatile market structures QIS comes of age

Finding a considered solution
Puneet Singh, head of Asia‑
Pacific quant at Societe
Generale, explains why, after
an underwhelming year for
many risk premia strategies,
investors are left questioning
how best to evaluate which
quantitative strategies stood
the test of volatility, and why
In the search for new and
reliable sources of investment
return, the appeal of lower-cost
quantitative strategies that offer
the continuing promise of
outperformance coupled with
the benefits of diversification is
clear. So how should investors
approach the task of strategy
selection?

8 Q&A

Risk premia strategies

Exploring alternative approaches

A forum of industry leaders discusses the challenges and

opportunities in alternative risk premia, the pros and cons
of managing risk premia strategies internally, and how their
respective organisational strategies have evolved using research
to best meet clients’ needs

11 Case study 13 Case study

Edhec-Risk Institute PremiaLab

Analysing consensus A new perspective

An academic approach to QIS Overcoming increasing complexity

A sound understanding of key drivers of investment returns
and defining logical rules are fundamental to ensuring QIS is
effective. Edhec-Risk Institute has established itself as a go-to
resource for institutions creating or investing in QISs, offering
diversified portfolios across and between factors
As QIS becomes increasingly sophisticated and firms constantly
drive for cost-efficiency, the relationship between buy-side
firms and investment banks is being altered. PremiaLab offers
a fresh outlook on asset allocation, providing productivity and
transparency for buy- and sell-side market participants

2 QIS Special Report 2019


Volatile market structures
Finding a considered solution
Puneet Singh, head of Asia‑Pacific quant at Societe Generale, explains why, after an underwhelming year for many risk premia
strategies, investors are left questioning how best to evaluate which quantitative strategies stood the test of volatility, and why
What types of risk premia demonstrated outperformance last
year, and is there a discernable pattern or strategy that could be
replicated in the future?
Puneet Singh, Societe Generale: Given the turbulence and underlying
uncertainty of 2018, a key attribute of strategies that performed well was
‘defensiveness’. We saw carry strategies perform particularly well. Unfortunately,
these tend to be long-duration, which adds significant downside risk.
Societe Generale’s duration-neutral cross-sectional strategies outperformed
most risk premia in 2018 and are off to a great start in 2019.
Another strategy we are focusing on, though not a singular risk premium,
is machine learning. Equity factor investors face a major challenge in selecting
premia and how to allocate to them – we first used machine learning to address
this issue a couple of years ago to good effect in research. Given our DNA, we’re
not happy with just theoretical results, so we took the strategy live and made it
investable. We have since shown it would have made money in 2018, which was
a challenging time for most equity investors.
Are market structures changing to the extent that old diversification
rules no longer apply?
Puneet Singh: The bond-equity decorrelation argument is certainly weaker. In
recent years, we’ve seen quality-based defensive strategies outperform, which
means a larger proportion of the equity market capitalisation is made up of
stocks that are essentially bond proxies. We find using equity value strategies
provides a better diversification profile when mixed with bonds.
This theory also underpins our current hedging suggestions to clients. Given
interest rate concerns in a slowing economy with quantitative easing (QE)
being reversed, our clients are looking to hedge their bond portfolios, and the
decorrelation with value makes it a good hedge.
What do you see as the biggest medium- to long-term risks facing
the markets and how should investors prepare?
Puneet Singh: Cheap financing during QE led to many US companies
borrowing money, with rising interest rates now putting pressure on their
balance sheets. As refinancing comes due over the next couple of years,
many may find it difficult in a stagnating global economy. If debt assets are
downgraded below investment grade – which, at around 5–10%, they are on
the cusp of – we will see a ripple effect in debt markets, exacerbated by duration
issues (three years for high-yield bonds versus seven for investment-grade
bonds). We therefore advise clients to buy equities with good balance sheets.
A major upside risk is related to investors’ underweighting of value owing to
underperformance over the past few years. It is now trading close to its cheapest
and we expect it to outperform over the next year. Value is currently a collection
of global macro issues; it will likely outperform, especially if such major issues as
Brexit or the US-China trade war are resolved.
Interview
“We first used machine learning
to address [allocating premia] a
couple of years ago to good effect
in research. Given our DNA, we’re
not happy with just theoretical
results, so we took the strategy
live and made it investable”
Puneet Singh, Societe Generale
Lastly, as we saw in 2018, markets can turn turbulent within days –
making hedges a necessity. Our in‑depth research shows that different tail
risk hedges work in different scenarios – whether a cyclical downturn, a
structural downturn or a market crash. For example, the same hedge that
would have worked for February last year was unsuitable for December. Such
sharp drops are best hedged with volatility – which has come into its own
as an asset class in the past few years. The key issue for most investors for
these hedges is cost – we have developed a carry strategy that mimics the
long volatility exposure of the hedges while providing carry to mitigate some
of the cost.
What advice would you give to fund managers new to such ideas
as diversifying underlying factors? Especially those in Asia who may
find it tough to explain to clients.
Puneet Singh: Most asset class movements can be deconstructed and
explained with the use of factors, as supported by research over the past
decade. The key paper in this area is the Evaluation of active management
of the Norwegian Government Pension Fund,1,2 in which up to 60% of the
variance of active returns is attributed to dynamic risk factors. As such, factor-
based investing has grown substantially across asset classes, including active
management and passive management – or smart beta.
There is confusion around the term ‘risk premia’, which has been mistakenly
applied to structural anomalies and dislocations. Although these anomalies may
add value from a tactical or strategic perspective, they exhibit behaviour that
stems from a different set of dynamics. My advice is to be clear on why you are
adding a particular return stream to your portfolio to really understand the key
drivers and benefits of each, and to be sure these strategies are aligned with the
overall objectives of the investment process. n
1
A Ang, W Goetzmann and S Schaefer, Evaluation of active management of the Norwegian Government
Pension Fund – Global, December 2009, https://bit.ly/2OVXqcZ
2
A Ang, M Brandt and D Denison, Review of the active management of the Norwegian Government
Pension Fund Global, January 2014, https://bit.ly/13zL7Kx
risk.net 3
 Strategy selection
QIS comes of age
In the search for new and reliable sources of investment return, the appeal of lower-cost quantitative strategies that offer the
continuing promise of outperformance coupled with the benefits of diversification is clear. So how should investors approach
the task of strategy selection?
I
nvestors’ desire for diversified sources of return at low costs has powered
demand for QIS. But investors should ensure they understand the nuances
of these products and ask challenging questions of providers before
selecting a strategy.
This report identifies the characteristics of the most popular QIS iterations,
their utility to asset managers and ways in which they can be implemented
within a portfolio. It also elaborates on certain selection criteria that should be
considered by institutions planning to implement a QIS and highlights the risks
they could face on their way.
Defining QIS
Buy-side firms are increasingly turning to QIS to complement their portfolios.
However, actual investments are concentrated among US and European money
managers, with Asian-based investors only recently joining the club.
4 QIS Special Report 2019
Yet interest in QIS is growing in the region. In the second quarter of 2018,
one of the largest insurers in China said it was in the process of rolling out a QIS
platform for clients. Others are likely to follow as sources of alpha in emerging
markets threaten to diminish.
These QIS are constructed to perform specific functions. Indeed, the initialism
is a catch-all for a series of asset allocation tools, including smart beta,
alternative risk premia (ARP) and hedging.
Smart beta
Smart beta represents an elementary form of QIS. These strategies are designed
to systematically select, weight and rebalance a portfolio in line with certain
metrics other than an individual security’s market capitalisation.
Their objective is to combine the benchmark-beating performance of a well-
crafted, actively managed portfolio with the low expense and simplicity of an

index-linked allocation. The strategies are typically
long-only and have been embedded in a wide range
of exchange-traded funds in recent years.
A common smart beta strategy is equal
weighting. Governed by such a methodology, a
strategy would invest in each constituent of a
chosen index as equally as possible, instead of
allocating more to the securities with the highest
capitalisation and less to those with the smallest.
This decouples the strategy’s performance from
that of the very largest securities, as in a market
cap-based strategy, instead responding evenly to the
price movements of each asset in the portfolio.
However, doing so increases the exposure to small
stocks, which are typically more volatile and vulnerable
to sudden drawdowns than their larger peers. The
superior returns possible through an equally weighted
strategy might come hand in hand with higher risks.
This is by design, not by accident. All smart
beta strategies strive to outperform a traditional
allocation methodology rather than subvert it. This
being the case, their performance remains correlated
to the market at large.
Therefore, while they make attractive alternatives
to the long-only portion of a portfolio, smart beta
strategies cannot offer a high degree of diversification.
Alternative risk premia
ARP strategies, on the other hand, can provide
diversification, yield enhancement and lower
risk exposure. These investments offer access to
systematic sources of return that are well evidenced
through empirical research and academic study.
Traditional risk premia are well known as the
sources of return over the risk-free rate that can be
achieved through a selected asset class. They include
equity risk premia – returns accessible to an investor
through buying into the stock market – and credit
risk premia, which reward those who invest in debt.
In contrast, ARP returns are linked to other, discrete
risk premia inherent across asset classes and markets.
Well-documented ARP, identified through
academic research, include:
• Value – captures excess returns to securities that
have low prices relative to their fundamental value
• Momentum – draws on securities with stronger
past performances, as evidenced by their relative
returns over a designated look-back period
• Quality – harvests the additional yield characteristic
of securities linked to companies with low debt,
stable earnings growth and a strong balance sheet
• Curve carry – the return accessible by investing
at different points of a given futures or forward
curve, usually in commodities or rates.
Investing in an ARP strategy offers meaningful
diversification as returns are statistically decoupled
from traditional market risks such as bonds and
equity. This is not to say an ARP allocation does not
have its ups and downs – risk premia are subject to
cycles of their own – but these may not synchronise
with the highs and lows of the market at large.
Their capacity as diversifiers make ARP strategies
attractive investments, allowing asset managers
to achieve higher expected returns for a given risk
budget or similar returns for a lower risk budget.
An asset manager may select a desired risk premia
exposure and have that govern the securities it
buys and sells within a segment of its portfolio. ARP
strategies can incorporate multiple asset classes and,
unlike smart beta, seek to maximise factor-based
returns through a mix of long and short exposures.
Hedging
The third broad category of QIS is systematic
hedging strategies. These are programmatic
allocation methodologies designed to efficiently
protect investors from specific risks such as market
risk, interest rate risk and tail risk.
Hedging QIS are not intended as yield-enhancing
plays, or a means of diversifying an asset manager’s
sources of return, as with an ARP strategy. Instead,
they can be used to safeguard returns by dynamically
rebalancing a portfolio between risky and risk-free
assets in response to predefined market signals.
Figure 1 Rebased performance of equity versus bonds (October–November 2018)
105
100
95
Equity
90
85
S&P 500 TR (SPXT) (left-hand side)
Bloomberg Barclays Global Aggregate (LEGATRUU) (right-hand side)
80
1 5 9 13 17 21 25 29
October 2018
Equities and bonds initially fell in unison during this period, with negative correlation returning towards the
end of 2018
Strategy selection
The efficacy of a hedging QIS should be graded
against two criteria: its ability to neutralise an
investor’s exposure to the unwanted specific
risk, and its cost of carry – the expense incurred
assuming the investment positions dictated by
the strategy.
An exorbitant cost of carry could outweigh the
hedging benefits of a strategy by depriving an
investor of the very returns they wanted to protect
in the first place. Efficient hedging QIS therefore
attempt to achieve the investor’s desired level of
coverage while optimising cost of carry.
Focus on ARP
For those looking to generate diversified and
higher expected returns, ARP strategies could
prove especially attractive considering current
trends – particularly when correlations that have
held true for a decade or more, and form the basis
of investors’ diversification strategies, may be
breaking down.
Take, for example, the equities market, which
erupted in October 2018 and caught fire in
December, when leading bourses entered correction
territory (see figure 1): as equities fell, so did
bonds – an occurrence that undermined the
negative correlation of the two asset classes that
dates back to around 1998.
100.5
100
99.5
Bonds
99
98.5
98
2 6 10 14 18 22 26 30
November 2018
Source: Bloomberg
risk.net 5
 Strategy selection
Such findings suggest established correlation assumptions are fraying. For
asset managers wedded to a portfolio composed of 60% equity and 40%
bonds, this spells trouble as the diversification that such a mix is intended to
provide may not prove robust going forward.
Changes to macroeconomic policy could be responsible for recent market
disruptions, and signal further turbulence ahead.
The US Federal Reserve Board began a process of balance sheet
normalisation in October 2017, under which its asset portfolio will shrink by
as much as $1.9 trillion over five years. This will draw liquidity out of a market
that has become used to easy money, and may increase short-term funding
costs for banks.
Expectations have also changed around the Fed’s interest rate rising cycle. In
September 2018, the central bank hiked rates for the eighth time since 2015,
with more rises anticipated. A seeming U‑turn and more dovish tone from Fed
chairman Jerome Powell in November suggests the Fed’s timing and frequency
will be determined as the macroeconomic and geopolitical outlook becomes
clear. Other central banks followed the Fed moves, with the Bank of England
and the People’s Bank of China adjusting rates upwards in 2018, but an air of
uncertainty now exists. The European Central Bank, though it has kept rates
static, ended net asset purchases on December 13, 2018.
Tighter monetary policy implies lower equity valuations, meaning the engine
driving stocks higher worldwide could start to sputter.
It is against this tumultuous backdrop that ARP strategies show their quality.
They can supplement any portfolio to provide the diversified returns sorely
needed at a time when traditional asset prices appear fragile and correlations
appear unsound.
Indeed, research by global investment firm Cambridge Associates shows
that a balanced portfolio with a 30% exposure to ARP funds would have
yielded 12% between January 2007 and March 2009 – the peak of the
financial crisis – compared with only 3% for a traditional portfolio without
this allocation.
As noted, this kind of performance is possible because ARP strategies diversify
away unrewarded specific risks – such as broad market risks – and focus on
delivering returns linked to fundamental risk premia.
QIS unlock a wealth of possibilities for asset managers.
ARP implementations in particular offer the attractive
opportunity to generate additional returns and inject
diversification into a given portfolio
Selecting an ARP strategy
The utility of ARP strategies is clear. But investment should be predicated
on a clear understanding of how they are constructed and what drives their
returns. A good strategy should be intuitive and readily explainable, and a
worthwhile provider should be transparent on how the chosen premia are
defined and accessed.
Take the following example of a ‘carry’ risk premium strategy. This is designed
to maximise the systematic returns investors receive in exchange for holding an
asset and assuming its associated risks.
This ARP can be found across asset classes. In rates, for instance, the carry
premium is an investor’s reward for taking the duration, interest rate, liquidity
and credit risks linked with a defined bond position.
6 QIS Special Report 2019
This premium is academically sound. Taking the excess performance of a
long position in 10-year US Treasuries over the past 20 years, two-thirds of the
performance came from coupon payments to investors – the specific, predefined
reward for carrying US government exposure. The other third came from the
decline in interest rates, a reward for market risk, which cannot be perfectly
known in advance of investing.
A rates-focused ARP strategy seeks to monetise this carry by buying and
selling rate exposures across currencies and tenors while controlling for
idiosyncratic market risk. Essentially, it makes money by borrowing at a low
interest rate and lending at a higher one.
A practicable implementation of such a strategy would dynamically allocate
between a basket of interest rate swaps linked to different currencies at a set
tenor – say, the 10-year rate. Swaps the trading strategy identifies as having the
highest carry after controlling for realised volatility are bought and those with
the lowest are sold, with the difference between payments sent and received
generating the return.
Greater diversification can be achieved by dialling up the number of currencies
included in the basket, although this comes at the expense of performance, as
the carry premium is eroded by spreading the rate exposure more widely.
This example is founded on a well-known, academically sound risk premium;
it can be implemented with simple, liquid instruments – in this case, interest
rate swaps; and its source of return is easily explained to an asset manager’s
investment board.
Steps to implementation
Identifying a reliable ARP should be a prospective investor’s first priority. In
recent years, a host of factors have been unearthed by quantitative analysts and
academics. However, just a handful can be empirically proven to have produced
positive returns. In fact, a 2014 study of 600 factors found that 49% produced
zero or negative risk premia.1
The stable of risk factors with a sufficiently rich history to recommend them to
investors is smaller still.
The burden of proving a factor’s efficacy lies with the ARP provider, but it is
the responsibility of the asset allocator to decide whether a given amount and
quality of evidence is sufficient to greenlight an investment.
It is also the investor’s duty to understand how a given premium is defined
by a provider, and the process by which related exposures are selected by their
provider. ARP with the same names are designed differently by each provider
and can exhibit wildly different behaviours. For example, ‘quality’ strategies rely
on a variety of metrics to select appropriate securities, including, but not limited
to, the issuing firm’s leverage, earnings stability, earnings growth, dividend
strength and governance. Each provider will use a subtly different selection
and weighting taxonomy to extract the ‘quality’ premium, resulting in variable
return profiles.
Investors therefore need to be aware of the signals a provider considers when
selecting assets to populate an ARP strategy, as well as those used to prompt
portfolio rebalancing. Otherwise, they could accrue exposure to unwanted risks
or miss out on a premium they want to access. They could also impose excessive
trading costs if the chosen signals demand frequent asset turnovers.
Backtesting bias
A popular tool used by providers to guide investors’ ARP selection is the
backtest. But investors should approach these with a healthy scepticism and
scrutinise them for hidden biases.
Testing an ARP using historical data from a specific time period reflecting
1. Levi Y and I Welch, 2014, Long-term capital budgeting,” SSRN

particular market conditions may evidence outperformance, but does not
guarantee similar results in the here and now.
Take, for example, ‘momentum’ strategies: the quantitative methods used
may accurately select high-momentum securities over the backtesting period,
but could deteriorate in live performance as the signals may have been
optimised for that specific timeframe, instead of being designed for robustness
in all market conditions.
To avoid buying into ARP strategies that have been overfitted to certain data,
investors should check backtests for these kind of biases, and demand they cover
extended timeframes embracing a variety of market regimes.
Forms of implementation
Managers have a range of means to gain exposure to ARP strategies, although
not every wrapper is appropriate for all users.
Cash-rich managers can opt to invest in a dedicated ARP fund, thereby
gaining real exposure to the assets captured by the strategy. These are subject
to management fees and potentially liquidity fees and redemption gates,
which may obstruct an investor’s ability to withdraw cash at will. In addition,
investors do not have the option of altering the strategy once committed, as
implementation is fully outsourced to the fund manager.
Strategies can also be embedded within structured notes or certificates. These
wrappers provide investors with factor exposure under a single Committee on
Uniform Security Identification Procedures number, and may offer additional
benefits such as a principal guarantee or downside protection ‘buffers’.
A structured note wrapper may prove ideal for real money managers
prevented from investing in synthetics. Although the return of a note is linked
to the performance of the underlying ARP strategy, the investor is never the
asset owner. Instead, the provider runs the strategy in-house and transfers its
performance to the note by means of a swap.
Money managers permitted to use and comfortably transact derivatives may
consider accessing ARP through a total return swap or similar instrument. Here,
the investor gets pure exposure to the return of their chosen strategy minus a
set fee.
This structure requires no upfront cash investment, freeing managers to put
their cash to work elsewhere. Swaps are generally of short duration, but can be
rolled over with changed terms – such as different notionals – offering investors
a flexibility they do not enjoy with other implementations. For certain ARP,
investors can also buy a call option, either in a securitised format or an over-the-
counter derivative, to achieve more leverage.
Costs of implementation
An essential consideration when choosing between ARP strategies is cost.
A central appeal of these strategies is that they can deliver returns above
those of the broader market at a lower cost than an active manager or hedge
fund allocation. However, these can be crimped by excessive strategy and
wrapper fees.
An ARP provider will typically extract payment for an investor’s right to access
its intellectual property and to cover the costs of implementing and managing
the investment via a deduction from the strategy’s returns.
Competition between providers has pushed these costs down in recent years,
although multifaceted strategies reliant on a high degree of asset turnover and
incorporating short positions are typically more expensive. However, an ARP
strategy is still some way cheaper than a typical hedge fund allocation subject to
a ‘two and 20’ fee structure.
The choice of wrapper will also influence an ARP strategy’s all-in cost. A fund
allocation will attract management fees and transaction costs if and when the
chosen strategy signals a portfolio rebalancing, whereas a swap implementation
Strategy selection
will incur costs in the form of a swap maintenance fee to the counterparty, as
well as an index fee to cover the expense of the third-party calculation agents.
The ARP difference
Prospective investors should be wise to the differences between ARP strategies
and traditional hedge fund allocations.
Active managers and ARP strategies both seek to extract returns from selected
risk premia. However, the latter do so systematically in accordance with preset
rules hard-coded into their governing algorithms. Unlike actively managed
strategies, an ARP is free from human discretion – and interference – which
means an investor always has perfect knowledge of how their money is being
deployed, and why.
Best practice among ARP providers is to outsource the administration of
a strategy wholesale to an independent third party, further strengthening
its integrity.
Naturally, conflicts of interest arise where a bank owns and operates a
strategy that it sells to clients. If a bank’s traders are privy to when an ARP
algorithm buys and sells, they have the ability to front-run the transactions and
depress the strategy’s returns accordingly, to the detriment of the end‑investor.
The presence of an independent calculation agent, alongside the provision of
a comprehensive strategy disclosure document, can minimise these conflicts.
One other consideration remains for prospective investors: the choice of a
benchmark against which to judge an ARP strategy’s performance. The problem
is that few appropriate benchmarks exist. The purpose of these strategies is to
offer returns uncorrelated to market risk, meaning that traditional benchmarks,
including prominent stock and bond indexes, are not fit for purpose.
Furthermore, as each provider’s definition and means of accessing ARP varies,
comparing the performance of one strategy with another can prove fruitless. One
solution is to use an index consisting of all or a large sample of ARP strategies
anchored to a particular factor. This way, an investor can determine whether a
specific momentum strategy, for example, has outperformed or underperformed
the universe of momentum strategies as a whole.
Identifying a reliable ARP should be a prospective
investor’s first priority. In recent years, a host of factors
have been unearthed by quantitative analysts and
academics. However, just a handful can be empirically
proven to have produced positive returns
Conclusion
QIS unlock a wealth of possibilities for asset managers. ARP implementations
in particular offer the attractive opportunity to generate additional returns and
inject diversification into a given portfolio.
Potential investors should be wise to the processes that underpin the
ARP lifecycle, from inception to construction, and favour strategies that are
transparent, simple to explain and underpinned by in-depth, unbiased research
documenting their ability to provide outperformance over the long term.
They must also be wary of the implicit and explicit costs of different
strategies, and sensitive to the type of implementation most suited to their
investment mandates.
An asset manager that keeps these considerations in mind, however, should
find much to celebrate after taking the decision to develop an ARP strategy. ■
risk.net 7
 Q&A

Risk premia strategies

Exploring alternative approaches
A forum of industry leaders discusses the challenges and opportunities in alternative risk premia, the pros and cons of managing
risk premia strategies internally, and how their respective organisational strategies have evolved using research to best meet
clients’ needs

8 QIS Special Report 2019


Clément Leturgie
1798 Alternatives Product Specialist
Lombard Odier Investment Managers
www.lombardodier.com
How is your organisation currently using risk premia strategies,
and how has its approach evolved over time?
Clément Leturgie, Lombard Odier Investment Managers: Lombard
Odier Investment Managers has been researching, developing and combining
in-house alternative risk premia (ARP) for more than four years. Our approach
has remained consistent in that we research and develop premia and work with
clients to design solutions that fit their needs. Today, our clients mostly use ARP
as a source of uncorrelated returns.
Chen Ni, China Minsheng Bank: China Minsheng Bank uses beta and alpha
strategies to construct portfolios for clients. Beta strategies are long-only strategies
across assets. Alpha strategies mean long-short strategies. We previously only used
beta strategies, but we gradually included alpha strategies because the portfolio
would otherwise suffer greatly under disadvantageous conditions. For example, this
year almost all of the long-only strategies were doing badly, but some long-short
strategies were performing much better. From 2017 we started to combine the two
strategies into our portfolio to achieve a relatively stable performance.
Now about half of our investment is in beta strategies and the other half in
alpha strategies: equity, commodity, foreign exchange, interest rate and volatility.
We allocate our risk evenly among these five alpha strategies.
Qibao Pan, China Guangfa Bank: China Guangfa Bank builds its risk premia
strategies on a mix of beta and alpha, which in turn makes our asset allocation
portfolio broader. Currently, 40% of our risk is in beta and the rest in alpha.
The change in risk premia strategies over the past year – from focusing mainly
on beta to adding factors such as momentum – occurred because we found that
beta strategies in many scenarios have a relatively large drawdown, especially
when the stock market performs badly. To mitigate such fluctuation, we bring in
alpha strategies, which have a lower correlation, increasing the overall Sharpe ratio.
What is the main attraction of these strategies?
Qibao Pan: The beta strategies we use are global, which means our asset
portfolio can be accessed globally – for the most part, in countries in the
developing world and emerging markets. That also spreads the bank’s alpha
strategies across a variety of asset classes, including fixed income, forex and
commodities. Our strategies are diverse and dispersed within clear asset
classes, which we consider helpful in increasing the Sharpe ratio. We find those
strategies that have lower correlations but are still robust, and tie them to others.
This gives us a decent Sharpe ratio for the portfolio as a whole, while each
individual strategy may not have a Sharpe ratio as high.
Clément Leturgie: The objective is to offer an uncorrelated source of returns in
a liquid format, with transparency and a low-fee structure.
Chen Ni: The main attraction is transparency – especially compared with
actively managed strategies – which makes the strategy easier to explain to
clients. Furthermore, the execution of those strategies lowers trading costs
and management fees compared with active strategies.
Q&A
Chen Ni
Investment Manager
China Minsheng Bank
en.cmbc.com.cn
How do you tackle issues around liquidity and capacity?
Chen Ni: Capacity is a very important issue, especially for alpha strategies,
because if there is too much flow into the strategy the arbitrage opportunity
will disappear. China Minsheng Bank constantly observes the market and reacts
to this diminishing opportunity. For example, in the commodity carry strategy,
we calculate the implied return and see how much room is left. If there isn’t
much room for the arbitrage, we will stop the strategy. Liquidity is another
issue. We only choose underlyings with very good liquidity in our risk premia
strategies – for example S&P, West Texas Intermediate, US Treasury bonds, and
so on.
How does your organisation perceive crowding, and what tools
is it using to be better informed of the dynamics involved?
Qibao Pan: One of the best ways to tackle crowding is to analyse it according
to their correlations. For example, I would put the overcrowding strategies into
different designated ‘baskets’ or relevant categories depending on the nature
or asset class of these strategies. Therefore, these baskets may be crowded
internally, but still exhibit reasonably low correlation with each other.
Chen Ni: Crowding is very difficult to perceive. There are two ways to overcome
this: through close observation of market indicators such as implied return
positions and exchange-traded fund flows, and through discussion with peers
and people on the street.
Clément Leturgie: Crowding is one of the main issues for risk premia – and
for markets in general. In risk premia, crowding often results in lower returns
and potentially more volatility or drawdown in periods of unwind, affecting the
risk-return profile of premia over time. Lombard Odier offers four main solutions
to tackle issues around liquidity and capacity:
1. We focus on the most liquid risk premia, excluding, for example, emerging
markets and premia investing in less liquid securities such as credit
single securities.
2. We aim to be different and innovative in the way we capture and implement
our premia to limit crowding exposure. One example of this is our equity
factor market-neutral premia, where integrating environmental, social and
governance considerations helps to differentiate our portfolio. We also avoid
shorting single stocks to prevent the negative impact of a potential crowding
unwind short-squeeze phenomenon.
3. We have limited our capacity: under current conditions, we would cap our
offering at $3 billion in ARP.
4. We continuously research new premia to diversify our offering and
increase capacity.
Does factor timing play a part in your organisation’s strategy?
Does the risk of crowding outweigh any potential benefits?
Clément Leturgie: Lombard Odier does not try to time premia based
on discretionary views. However, one may argue that using a risk-based
approach to construct a portfolio incorporates, in some way, a timing
risk.net 9
 Q&A
component. In our portfolio construction process, we use a proprietary risk
measure that takes into account short- and long-term premia information.
While the short-term component incorporates a momentum factor, the
long-term component is more static. The resulting portfolio is probably less
subject to short-term premia momentum than a portfolio using a simplistic
risk-based approach.
Chen Ni: China Minsheng Bank doesn’t use factor timing. We do backtesting
and try to construct an all-weather strategy, which is expected to withstand any
market conditions with limited drawdown.
Is your strategy managed internally? What are the pros and cons?
Chen Ni: Most of China Minsheng Bank’s strategies are managed internally,
while some counterparties offer us a lot of help. Our advantage is that we know
the philosophy behind the strategy, which makes it easy for us to explain it to
our clients. Our disadvantage is that, compared with the international investment
banks, we lack experience.
Clément Leturgie: Lombard Odier’s strategy is managed internally.
We believe developing our own premia enables us to be innovative and
differentiated to limit crowding risk, have a deep understanding of, full control
of, and transparency in our investments, be fully flexible and able to customise
solutions for partners, and limit the costs of our solutions by netting premia
with offsetting positions.
While diversified and relatively broad, our individual premia and trading
capacities for complex premia offerings will remain smaller than investment
banks can offer. We work with investment banks to leverage their capabilities,
notably on complex premia such as those in the volatility space.
Qibao Pan
Director of Financial Market Department
China Guangfa Bank
www.cgbchina.com.cn/en
How does your organisation measure success? What is done to
ensure a backtested strategy is right for its portfolio?
Qibao Pan: China Guangfa Bank prefers strategies that are more robust and
consistent based on the historical data, but not necessarily with a high Sharpe
ratio. If a strategy’s Sharpe ratio is tested 0.5, I would say it’s a good strategy.
Sometimes, a strategy performs well because filters were added and parameters
twisted, which we should resist. What we need is a simple strategy with just a
few logical parameters and filters.
Chen Ni: China Minsheng Bank has absolute return targets for its portfolio. We
usually invest in ARP strategies in option format. We consider it a success if the
performance of our chosen strategies can beat the option fee we paid.
Clément Leturgie: Lombard Odier has been active in developing customised
solutions for clients, offering uncorrelated risk premia and a robust
combination process in the context of their global portfolio. When we build
a solution, we define clear objectives with partners, and success is achieved
10 QIS Special Report 2019
when these objectives are delivered. Our objectives are mostly focused on
returns targets, volatility targets, Sharpe ratio, maximum drawdown limits and
diversification benefits.
We understand the limits of backtesting and follow a simple set of rules to
ensure the premia we develop and implement add value to clients’ portfolios:
1. Premia should always have a clear economic or financial rationale, or
be derived from market participants’ behavioural biases. Premia offer
compensation for a certain risk, which should be well identified and
understood. This prevents the team developing premia that are simply the
fruit of intensive data mining.
2. We avoid overoptimising premia. We like them to be pure, which enables us
to better understand and be more efficient in combining them.
3. We do not develop premia simply to add them to our offering. When
implemented, a new premium should add diversification benefits.
4. We set conservative objectives and expect our premia to deliver about half
of the backtest returns.
Do there need to be new benchmarks in ARP?
Clément Leturgie: Yes, although this is a difficult task considering the
heterogeneity of the space. The simplest way to start with ARP benchmarks
would be to offer indexes that reflect the aggregated performance of the
industry’s major players. It would also be great to have benchmarks for
individual premia, showing the performance of the most simplistic way of
capturing a certain premium. It will then be easy to assess the value added
by a manager, whether in the premia development process or the
combination process.
What is the biggest opportunity in ARP going forward?
Chen Ni: China Minsheng Bank is planning to implement machine learning
algorithms in the near future. Recently, we have been developing a new multi-
asset strategy – Multi-Asset Cycle Rotation Overseas Index, or Macro – based
on signal processing theory. We found that by applying machine learning
algorithms, the strategy will be more efficient.
What is likely to be the greatest challenge to ARP?
Qibao Pan: An obvious pitfall is to judge a strategy based on its high Sharpe
ratio, which is gathered from its backtesting. However, well-performing strategies
on paper backtest may not persist in the future due to various factors from
limitations in historical data or overoptimisation. We shouldn’t pay too much
attention or put too many expectations on strategies that do particularly well in
backtesting. Instead, we should select strategies that are robust and consistent
and combine them.
Clément Leturgie: The biggest challenge today for investors is assessing
managers. The development of benchmarks will help in this endeavour.
Managers should also work closely with investors to set realistic expectations
and determine achievable objectives.
For managers, the greatest challenge will come during periods of strong
risk and market unwind. A lot of ARP, though market-neutral, can recorrelate
to equities in periods of stress. Adding crowding to the equation can result in
large losses at the same time as the equity market. It will become clear in these
periods which managers have developed the most differentiated premia and
built the most robust and uncorrelated portfolios.
Chen Ni: For beta strategies, decreased economic growth is the
main challenge. For alpha strategies, it is crowding and changes in market
structure. n

Analysing consensus
An academic approach to QIS
A sound understanding of key drivers of investment returns and defining logical rules are fundamental to ensuring QIS is effective.
Edhec-Risk Institute has established itself as a go-to resource for institutions creating or investing in QISs, offering diversified portfolios
across and between factors
Quantitative investing is an approach to asset
allocation grounded in financial research and
mathematical modelling. A successful strategy is one
that is rooted in academic research of the fundamental
drivers of investment returns and governed by
immutable rules dictated by reason, not whimsy.
It’s little surprise, therefore, that Edhec-Risk
Institute (ERI) has become a premier resource for
institutions looking to create or invest in QIS. As a
leading academic think-tank in investment solutions,
ERI provides research, outreach, education and
practitioner partnerships oriented towards the
broader application of innovative asset management
models – and especially factor-based strategies.
ERI only promotes factors for which broad
academic consensus exists: value, momentum, size,
low volatility, high profitability and low investment.
The institute champions simple definitions of these
factors and is wary of those that rely on data mining
as opposed to the well-documented empirical
research in academic studies on factor investing.
Eric Shirbini, global research and investment
solutions director at ERI, explains: “Our academics
spend a long time analysing these factors, looking
at data typically spanning some 40 to 80 years to
see if they are priced or not. This analysis spans the
period after a given risk factor has been discovered,
so that we can see if it persists once practitioners
start to invest.”
ERI has constructed indexes that access all
six factors as well as a multi-factor product for
investors seeking diversification between sources of
alternative risk premia. This allows asset managers
to smooth out the peaks and troughs associated
with individual factor exposures.
Index construction
ERI has been painstaking in its approach to index
design. First of all, simple and transparent criteria
for identifying those securities rich in a given
factor premium were established and then applied
consistently within and between equity markets –
meaning the same analysis is used on an equity
regardless of whether it’s listed in Lima or London.
Case study: Edhec-Risk Institute
The selected equities are chosen within
economically integrated regions rather than on
a worldwide basis, however. This is to prevent
exposing an index to geographical risks. Disparate
interest rate regimes, currencies and economic cycles
exist between regions, meaning if stock selection
were based globally, certain countries would be
over- or under-represented.
“If you want to create a value factor index, you
shouldn’t look at value stocks across the entire
developed or developing world, because if you
do that you may find your index overweighted
Japan, as that is where a lot of cheap stocks can be
found, whereas there are not many cheap stocks in
the US,” says Shirbini.
“Our methodology prevents us taking big
macroeconomic bets, which would be wrong as
factors are microeconomic exposures,” he adds.
Once factor-rich stocks have been identified,
ERI’s methodology applies a stock diversification “Our academics spend a long time
weighting to prevent the index tilting too much analysing these factors, looking at
towards a small handful of securities.
“Instead of relying on individual stock
data typically spanning some 40 to 80
characteristics, we capture a wide group of stocks years to see if they are priced or not”
exhibiting a factor bias and diversify between them. Eric Shirbini, ERI
The objective is to capture the factor performance of
the group,” Shirbini explains. Benchmarking
It is this two-layer approach that generates the Not knowing how to gauge the performance of a
superior risk-adjusted returns investors seek from factor strategy can frustrate a naive investor. Factor
factor strategies. Shirbini says an ERI index could models promise much, but a manager that uses
deliver a Sharpe ratio between 60% and 80% a deficient means of benchmarking their chosen
higher than a corresponding cap-weighted index strategy will receive a flawed assessment of their
over a period of 10 years or more. true performance.
Although the lion’s share of this Shirbini says the appropriate method of
outperformance is provided by the factor comparison will depend on the role a factor strategy
exposure, around 25% to 40% can be traced plays within a manager’s broader portfolio.
to the high degree of diversification achieved “If you are replacing a cap-weighted index with
between the chosen stocks, and between a factor index, it doesn’t make sense to measure
the factor index as a whole and its cap- the performance of the latter relative to the former,
weighted competitors. because the purpose of this allocation shift is to
“Cap-weighted strategies are extremely create a portfolio with lower risk than a market
concentrated. Our factor strategies stay away from exposure but one that obtains higher returns. The
taking too much risk on certain individual names. more appropriate measure is absolute risk-adjusted
That is why we diversify,” says Shirbini. return,” he says.
risk.net 11
 Case study: Edhec-Risk Institute
“But if you are looking to use a factor portfolio
on a relative return basis, versus the market, it’s
important to adjust the benchmark to reflect the
different market beta of that factor exposure.
There’s no point benchmarking to the market
without an adjustment, as with these strategies
your exposure to the market is changing all the
time,” he adds.
Isolating biases
Market beta bias is one of three ERI identifies as
having ‘implicit risks’ hidden in factor strategies.
Another is geographic bias, as previously described,
and the third is sector bias.
Market beta bias concerns the extent to which
a factor strategy’s performance is contingent on
the equity market risk factor. A zero-correlated
alternative risk premia strategy would exhibit no
market beta bias, for example. But all long-only
factor indexes will see their returns governed in part
by broader market movements.
Shirbini says it is important investors
understand the role of market beta bias
and adjust their allocations, or benchmark,
as appropriate.
“Research suggests that, when you invest in a
factor, your market beta changes. If you have a value
exposure, your market beta would be completely
different than if you had a momentum exposure.
It’s important to recognise this, as that market
beta will still be an important driver of a strategy’s
performance,” he explains.
12 QIS Special Report 2019
ERI offers an index overlay that controls for
market beta, allowing investors to maintain a
constant exposure to the market risk factor within
their chosen factor strategy.
Sector bias refers to a factor strategy’s propensity
to certain over- or underweight industry segments
in its allocation. This represents an unrewarded
risk, as a concentrated sector investment can lead
performance to be influenced by that sector, rather
than the chosen factor.
A value index, for example, may contain a large
number of insurance or bank company stocks – far
more than in the corresponding cap-weighted index.
This would make the strategy overweight financials.
An investor may want to adjust the portfolio to
pare back this sector risk. However, applying such a
filter could significantly reduce the very exposures
that generate the factor-based returns, undermining
the efficacy of the strategy.
“We wouldn’t recommend adjusting for sectors,
because there is a price to pay in terms of long-term
performance, unless the investor is concerned about
tracking error,” says Shirbini.
However, this decision – as with all those regarding
implicit risks – is in the hands of the investor alone,
and depends on their desired outcomes, says Shirbini.
The myth of crowding
ERI does not need to put faith in factor investing. It has
the empirical data and economic rationale to prove
these strategies’ utility, and the institute is keen to
debunk certain fallacies that have arisen around them.
One argument peddled by factor sceptics is that
the returns associated with value, momentum,
low-volatility premia and the like will evaporate as
investors pile into the equities that exhibit them.
Take, for example, value stocks: these are
securities considered cheap relative to their price-
to-book ratios. However, as managers increasingly
buy up such stocks, as directed by value strategies,
their prices will rise, reducing or even eliminating the
initial value premia.
Shirbini has little time for this supposed flaw
in factor investing. “Crowding applies to alpha,
as this is a transient phenomena, which, once
uncovered, will disappear. Factors are different.
They are specific, rewarded risks. You can have a
factor that performs well for long periods of time
but then the risk they hold materialises, resulting
in drawdowns. Then all the people who jumped
on the bandwagon when it was doing well will
jump off again, but the factor premia will still be
there for the long-term investor who rides out the
cycle,” he says.
Another misapprehension is that factors can be
‘timed’ – that is, an investor can efficiently rotate
between different factor exposures over a given
time horizon to maximise their returns and minimise
their risks.
Shirbini says this is wishful thinking. “You cannot
time factors. They have their own cycles and they
cannot be forecast. This is why the best solution is
to hold a diversified portfolio across and between
factors. Such a portfolio is very difficult to beat.” ■
 Case study: PremiaLab

A new perspective
Overcoming increasing complexity
As QIS becomes increasingly sophisticated and firms constantly drive for cost-efficiency, the relationship between buy-side firms and
investment banks is being altered. PremiaLab offers a fresh outlook on asset allocation, providing productivity and transparency for
buy- and sell-side market participants

The universe of QIS is vast, complex and expanding. built upon millions of data points and deliver factor strategies using different risk parity allocation
PremiaLab acts as a guiding light for buy-side firms these insights through our lens. This simplifies methodologies, and conduct risk and performance
navigating this space through its series of powerful and streamlines the asset allocation process for simulations in seconds.
analytical tools, designed to assist asset managers institutional investors,” he explains. “We understand that there is no single strategy
and pension funds, among others, to construct and Not only can an institution effectively compare or risk factor that can perform in all market
monitor factor portfolios. strategies, but it can also uncover how different environments. What’s needed is diversification, and
“We provide easy access to data,” says portfolio allocation styles would perform relative our platform gives clients the ability to put together a
Pierre Trecourt, co-founder of Hong Kong-based to one another. For example, an asset manager diversified performance engine for their portfolio that
PremiaLab. “It can be a challenging process for buy- could assess the performance of a group of five produces steady growth,” says Trecourt (see figure 1).
side clients to understand the risk premia offering
and position it within their portfolio. We offer fast-
track understanding and transparency.”
Trecourt and Adrien Geliot, his co-founder,
“There is no single strategy or risk factor that can perform in all market
recognised the frantic growth of the QIS marketplace environments. What’s needed is diversification, and our platform gives
necessitated a fresh analytics infrastructure to clients the ability to put together a diversified performance engine for their
provide order and clarity to institutions active in portfolio that produces steady growth”
this fast-growing market segment. Their solution: a
Pierre Trecourt, PremiaLab
risk premia database and factor analytics suite that
put all the resources a portfolio manager needs to
build a suitable quantitative allocation on a single 1 Multi-factor portfolio construction using the PremiaLab platform
convenient platform.
190 Portfolio
Access to data Strategy 1
180 Strategy 2
PremiaLab has partnered with 14 leading
Strategy 3
investment banks, feeding their QIS strategies into
Strategy 4–5
its database, representing an estimated $480 billion 170
of assets under management. The user interface
allows clients to streamline the analysis of strategies 160
under a series of performance and risk metrics –
including value-at-risk, volatility and Sharpe ratio – 150
and against a set of well-known benchmarks.
Clients can also simulate multi-asset portfolio 140
performance over various time periods, granting
them control over the allocation process. 130
PremiaLab’s mission is to provide independent
access to data to clarify investors’ decision-making 120
when it comes to factor strategies. Trecourt
believes putting all the necessary data through a 110
standardised, fast and intuitive interface is essential
if firms are to design a portfolio that addresses their 100
specific needs.
“When trading with different providers, it’s
90
complicated getting all the relevant data on 2014 2015 2016 2017 2018 2019
strategies and constituents in a comparable form.
As of 31 December 2018
We provide a comprehensive analytic solution

risk.net 13
 Case study: PremiaLab
“It can be a challenging process
for buy-side clients to understand
the risk premia offering, and
position it within their portfolio.
We offer fast-track understanding
and transparency”
Pierre Trecourt, PremiaLab
Finding consensus
The next step was to create an independent factor
analytics tool to offer granular insights into the
universe of strategies available in the market and to
help optimise portfolio construction. The standout
feature is PremiaLab’s Pure Factors technology,
which allows clients to decompose a given strategy’s
exposure into independent risk factors and thereby
tailor a portfolio calibrated to their desired level of
factor intensity.
‘Pure factors’ are developed using PremiaLab’s
extensive database to extract consensus
implementation across providers while eliminating
disruptive noise and model-specific interference.
The 44 factors PremiaLab has identified are
extracted via a rigorous three-step statistical
analysis using principal component analysis of the
host of strategies in its database. They therefore
act as a reference, or benchmark, for risk premia
across factors and asset classes, which clients can
use to isolate the performance drivers of individual
strategies – or indeed any asset portfolio they care
to upload, including their own.
Trecourt says: “This advanced factor model allows
clients first to monitor the dynamics of factors across
styles and asset classes – especially their correlation.
They can then discover what’s driving their current
portfolio performance and risk in order to be in the
best-informed position to allocate to risk premia.
They are able to benchmark external managers,
measure alpha generation while controlling any
potential style drift. Using the Pure Factors model,
we can also differentiate between mainstream
14 QIS Special Report 2019
2 Long-term equity Pure Factor correlation
US mean-reversion momentum
EU mean-reversion momentum
EU quality
Global carry
EU carry
Global volatility
Global quality
EU volatility
S&P Global
US volatility
EU size
Global momentum
Global size
factor strategies and idiosyncratic iterations,” that
is, risk premia products that cleave close to the
consensus factors, and those that depart from them.
“Our approach is not to be factor referees but
to capture market consensus. Clients want to know
their factor position relative to the market as a
whole. Making this analysis possible is what we set
out to achieve, and how we create value for our
clients,” (see figure 2).
Piecing together the QIS puzzle
All of these tools and data provide institutions with
the crucial pieces needed to build their own QIS
‘jigsaw’, reflecting their goals, risk parameters and
allocation preferences. A client’s ideal end-state is a
clear understanding of the distribution of risks, and
therefore drivers of performance, for a given portfolio.
By providing factor-level analysis of an institution’s
existing asset allocation, PremiaLab is able to identify
pockets of unrewarded risk and which factor is
under- or overweighted. This gives clients the insight
needed to inject the right amount of diversification
into their portfolios through a quantitative allocation.
The analytics suite can also assist clients with
more nuanced objectives than straightforward
diversification. An asset manager with an existing
quantitative allocation could use the Pure Factors
benchmarks to tailor a portfolio that more efficiently
captures their desired premia exposure; another may
use the factor breakdown functionality to identify
0.7
EU momentum
US low volatility
Global low volatility 0.6
0.5
EU low volatility
EU value US momentum 0.4
US quality
0.3
Global value
US value 0.2
US size US carry
0.1
a strategy with minimum market beta exposure to
complement their long-only equity portfolio as an
appropriate overlay.
A holistic view
PremiaLab has created a new capital market
infrastructure empowering clients to workshop
their ideal systematic investment portfolio. It also
provides the insights required for institutions to
make informed choices on the most efficient means
of executing their desired strategies. Depending on
the composition of the factor portfolio, the most
cost-effective execution style may be preferred, or
one that hands the most control to the client.
“Execution risk has been underestimated by
clients at times, especially by those wanting to
implement strategies for large volumes. For instance,
it may be more efficient to outsource the trading
of volatility strategies to an investment bank with
strong trading and execution capabilities rather
than doing it internally. Clients are pragmatic – they
understand what’s best for them and implement as
they see fit,” says Trecourt.
This evolution of the relationship between buy-
side firms and investment banks is the result of a
heightened sophistication among the QIS user base
and the drive to seek cost-efficiency. What PremiaLab
represents is a new link in the asset allocation chain,
providing efficiency and transparency for both buy-
side and sell-side market participants. ■