Chris Schindler: The Alternative to Alternative Risk Premia (EP.10)
Jan 29, 2020
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Chris Schindler, a pioneer in Alternative Risk Premia (ARP), shares his extensive experience from Ontario Teachers’ Pension Plan, where he developed groundbreaking quantitative strategies. He discusses the rise of index investing, emphasizing that there's no such thing as truly passive investing. Schindler also delves into the challenges of recent ARP returns and presents his innovative project aimed at providing uncorrelated alternatives. The conversation highlights the importance of diversification and understanding risk allocation in today's complex investment landscape.
Chris Schindler highlights the importance of evidence-based investment strategies to navigate complex markets effectively and enhance decision-making.
His extensive experience in asset management showcases the proactive development of innovative alternative risk premia strategies ahead of industry trends.
The podcast discusses constructing alternative risk premia portfolios, emphasizing diversification and minimizing dependencies on traditional market movements for better returns.
Schindler stresses the value of collaboration within investment teams, advocating for diverse perspectives to foster innovation and improve decision-making processes.
Deep dives
Importance of Evidence in Investment Strategies
The podcast emphasizes the necessity of using evidence-based approaches when developing investment strategies. This involves relying on empirical data to inspire confidence in decision-making, rather than following trends or popular sentiments that may not be substantiated. Evidence-backed strategies can help investors navigate complex market environments and achieve better outcomes over time. Utilizing robust data analysis can also uncover inefficiencies in traditional investment approaches.
Chris Schindler's Background and Experience
Chris Schindler shares his extensive background in asset management, particularly his time at the Ontario Teachers Pension Plan. He discusses his evolution from research in economics to tactical asset allocation and managing systematic programs. His experience includes pioneering alt-risk premia strategies well ahead of the industry trend, demonstrating a proactive approach to investment management. This diverse expertise provides valuable insights into the development and management of innovative investment strategies.
Understanding Alt-Risk Premia
The conversation delves into the concept of alt-risk premia, which are alternative strategies designed to generate returns uncorrelated with traditional asset classes. The host and Schindler explore various methods for constructing these alt-premia strategies, highlighting the importance of diversification and the reduction of dependency on standard market movements. They emphasize creating a portfolio comprised of various independent signals to minimize overall risk. As institutional interest in alt-risk premia grows, understanding their dynamics becomes increasingly critical.
The Mechanics of Building Investment Models
A detailed overview of the process of constructing investment models is provided. Schindler explains the importance of varying parameters and optimizing model designs to capture different market signals while maintaining independence between strategies. He emphasizes that an effective model should be designed to reduce risks associated with market trends and ensure robustness across different market conditions. Incorporating diverse strategies and dynamic updates can enhance the resilience of investment models.
Collaboration and Communication in Investing
The podcast underscores the significance of collaboration and open communication within investment teams. Schindler asserts that fostering a corporate culture that encourages debate and the sharing of ideas is crucial for innovation and risk management. He suggests that successful investment processes require input from a diverse range of perspectives, which can lead to better decision-making and strategy development. By leveraging collective insights, teams can enhance their ability to respond to unpredictable market movements.
Navigating the Challenges of Systematic Investing
Systematic investing is acknowledged as an area fraught with potential pitfalls, especially as more players enter the space. The podcast addresses the challenges of distinguishing between effective and ineffective strategies, as well as the pitfalls of reliance on backtesting without a thorough understanding of the underlying models. Schindler emphasizes the need for scrutiny in evaluating strategies and warns against the danger of overcrowded trades that can diminish returns. The conversation highlights the importance of a solid foundation in both theory and practical application.
The Evolving Landscape of Risk Premium Strategies
Schindler discusses how investment in risk premium strategies has evolved over recent years, particularly in light of changing market conditions. He notes that many institutions have faced difficulties as the expected returns of these strategies have decreased. This decrease is attributed to increased competition and the saturation of risk premium products within the market. As returns become compressed, finding unique and innovative strategies is essential for distinguishing oneself in the crowded investment space.
Advice for Aspiring Portfolio Managers
In closing, Schindler offers advice for aspiring portfolio managers, stressing the importance of continuous learning and development. He encourages individuals to pursue foundational knowledge, such as obtaining a CFA, while also nurturing creativity and passion for investing. Building strong relationships and networks within the industry can provide valuable mentorship and guidance. By embracing a collaborative approach and fostering a culture of open discussion, aspiring managers can significantly enhance their prospects for success in the investment field.
Chris Schindler’s journey really took him all the way down the rabbit hole. He joined the Asset Liability Group at Ontario Teacher’s Pension Plan in 2000 and soon became one of the founding members of the newly formed Tactical Asset Allocation Group. Most of his 18 years at Teachers’ were spent exploring and developing quantitative tools and strategies to optimize portfolio allocations. An early insight regarding the importance of maximizing investment breadth (or unique independent return drivers) drove his research towards the world of CTAs and Risk Parity, eventually becoming one of the pioneers in Alternative Risk Premia (ARP). There’s a good reason why this one runs a bit longer than previous episodes. We discuss the recent explosion in index-investing (“there’s no such thing as passive in this world”), Alternative Risk Premia (and why returns have suffered so much in recent years) and Chris’ new project: a truly uncorrelated alternative to ARP. Please enjoy this incredibly insightful conversation between Chris, Adam and Rodrigo.
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