They communicate with us in a very seamless fashion in terms of the information they collect, whereas a fundamental manager might need to take six or seven phone calls to capture the same amount of information that a quant manager gets through a well-organised data file. Greg Vaughan: One of the things that feeds into that is the fact that the Australian market is so narrow. You can’t really run a quantitative process in the Australian market on auto pilot as you might attempt to do in the US or in Japan where you have the benefit of vast diversification.

Richard Dalidowicz: Why have Ankura and AMP done better than the cohort? Is it because you apply a bit more of a judgemental overlay to the quant process? Greg Vaughan: It’s obviously awkward for me to speculate on criticisms of other managers but I think there is a dangerous philosophical edge to some quants where they really have a religiosity about their models and they believe them to be robust and valid eternally and they’re very reticent to say: “Hey, this is about to run over a pothole here unless I just guide it around.” Or, “Things have changed such that the way I thought this part would be rewarded is no longer going to be rewarded as reliably in this environment.” So I think that it comes down to an ethos of selfexamination or honesty about knowing what you don’t know versus having absolute confidence. You have to have a bit of experience to delineate between when you’re becoming part of the behavioural bias problem and when you’re exploiting behavioural bias. That’s the essence of what quantitative investment is about – trying to exploit behavioural bias.

Kristian Fok: Quant managers are probably among the most transparent in terms of seeing the impact of their funds under management. Any quant manager that you’d want to have in a portfolio has an appropriate way of judging costs for trades and integrating that judgement into how you construct the portfolio at the time. And because quants have a whole range of options, if one option’s too costly they can go down the curve. But what that means is the information ratio does deteriorate over time. When quant managers talk about capping their funds it’s not because they suddenly can’t (use the process), it’s because they’ve decided that they’re willing to accept an information ratio of a certain amount and then estimate what size of fund is suitable.

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