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Antti Ilmanen

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2022-07-15

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2022-07-15

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1. “So I think there is a fair risk that we, anybody who was talking like that, is thought as the boy who cried wolf and losing credibility. Then by this time. And I think that would be sad because I think sometimes it's going to really work and this year really looks like it can be that sometime. And I felt always somewhat good that we were, at least we were not pushing for, we were not predicting mean reverting valuations that would have made things work. We were saying let's be really humble about any market timing use of this stuff, but low starting yields do anchor expected returns lower.”

   2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source

2. “Staying in this low expected return world or fast pain cheapening. And so then in the book, I was saying that I don't really have a strong view on this one, but in conclusions, I did put there that it just seems that stars are aligning for some fast pane. And it wasn't just the high valuations, but there was a catalyst. There was this basically inflation problem was seemingly getting as close to the day when Fed finally has to make some hard choices. And so that I got. Got right, but I would say that I was really lucky because I could have written it six months earlier, and in general I've had other market timing calls. I'm not famous for being good at market timing. I don't know anybody who is. There are no old-gold market timers in France billionaire lists.”

   2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source

3. “I'll put it largely to lucky timing. But so the story I was always saying that we know that we've got this low expected returns given those low starting yields. And by the way, related to what you are saying, I really like another statement. We borrowed returns from the future when we were capitalizing everything at those expensive levels. That locked in low future returns, we just didn't know whether that's going to materialize through slow pain.”

   2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source

4. “That situation has gotten us to this sort of everything bubble, as some say. And I think bubble is a bit wrong word there in the sense that there is a fundamental story behind it. The low real yields that were influencing all kinds of investments.”

   2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source

5. “Always good to think of starting yields and valuations sort of as two sides of the same coin. So starting yields of all major assets were coming down in last decade and last decades, actually several decades. So something that I try to make investors see that they naturally think of this way also of expected returns with bonds. But when they think of equities or housing, they sort of look at the rear view mirror and think of historical average returns that can be distorted by this reasoning or cheapening quite a lot. So I think it's helpful to think that all of these long-only investments are priced by thinking of expected cash flows, discounted by a common discount rate, the riskless part, and some various asset specific premium. And now when this common discount rate has been at all-time lows and was coming down for decades, so that was making everything expensive at the same time, whatever happened to the expected cash flows and other premium.”

   2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source

6. “Yeah, yeah. So one other founder, David Cabiller, he's always had this very good point that good investment results require good investment strategies and good investors. And so we wrote the paper together almost a decade ago on bad habits and good practices and really thinking about those things. And it does definitely get to behavioral vices. In general, I think behavioral finance literature focuses way too much on how you can exploit other people's mistakes as opposed to looking in the mirror and reducing your own mistakes.”

   2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source

7. “Alpha is something we all aspire for, but in reality the evidence is very limited that most investors can deliver alpha. Moreover, there's a lot of good research by others and us showing that much what people think is alpha can be explained by either hedge funds running lots of equity correlation or then correlation to these various styles that are not quite market beta, but it's certainly not pure alpha either. So somehow this type of demystifying, I think, is helpful. But it's clear that investors tend to be managers and investors tend to be overconfident in their ability to find that.”

   2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source

8. “Yeah, so this is related to all of us having this University of Chicago experience where we were really taught the value of being open and putting your research out there for public scrutiny to improve it and to educate. But of course there are possible downsides to that and that has been always a question. and we are not writing about all the proprietary strategies that we have but we are talking quite openly about some things like again styles factor investing, alternative risk premium, things that are relatively widely known and I have this I don't know yeah I'm certainly leaning that way of being too transparent and then somebody may have to control me a little”

   2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source

9. “Yeah. So the portfolio solutions group advises mainly institutional clients on all kinds of challenges that they have on thinking about expected returns portfolio construction risk management, et cetera. And then in addition, we write lots of papers. I speak in many conferences. And then in addition to that, I've had a hand in designing and improving some of our strategies, especially related to style”

   2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source

10. “It also helped that I basically decided to write this book expected returns. And when I wrote it, I asked Cliff to write the foreword for it. And by the way, if you haven't checked sometime the first words he has there, I was sweating when I read that it starts by telling that first time I met Auntie, I thought he was insane. And I was right. So that was a little stressful, but it turns it out very nice. But anyway, so that experience reminded, I think, both of us how aligned our thinking is based on this common background. And that somehow I think motivated them to, I think, them to offer and me to say yes, yes.”

    2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source

11. “Yeah. So I had stopped at systematic trading, but I had been talking with those guys often of possibly joining, it was a matter also of them opening European office because that's where I was physically. And so that was approaching.”

    2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source

12. “Yeah, so I think that from these times when I was strategist, I was talking to great people early on some LTCM and then various other people, including Alan, who came actually from Salomon. And so somewhere 03, he sort of invited me to try to be a mini cliff, a systematic trader with a small team there at Brevan Hauer, which was in some sense great, but it is sort of a misfit because it's a very discretionary place. And so trying to do systematic in that environment was harder. And I think none of us were doing extremely well. None of us were doing extremely badly, but it just didn't become a great fit. Yeah, yeah, yeah. But it was, on the other hand, it was just a great place. Well, first to try it, but the second thing is that when 2008 came along, it was one of the few places that were making money. So it was very comfortable vantage point for that environment.”

    2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source

13. “It was pretty clear that I wasn't sort of academic enough. I wanted to go to either buy side or sell side. I even talked to the G somewhere, Cliff and John where didn't go there, sort of thought from my 80s experience that buy side is dusty, wrong choice. Anyway, so I then went to Salomon Brothers, did bond research for a couple of years on yield curve strategies, then moved to Europe. That was always a deal with my wife to be a bond strategist at Salomon for many years. Initially very discretionary but gradually becoming more and more systematic and eventually sorted from this customer oriented role to prop trading for a while.”

    2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source

14. “Yeah, so that relationship actually already started when I was a portfolio manager, funnily enough actually one of these Michael Lewis' Lyars focus, Good Guys was one of my sales contacts. Oh, really? Yeah, yeah. He didn't have many good guys, but one was. Anyway, and I got to know people like Marty Libowitz before I went to Chicago, and I think he helped he may have again had a hand somewhere there. And so when I finished my studies”

    2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source

15. “Both Cliff, actually all three, Cliff, John, and I, we had Farmer and Franchis, our dissertation chairman. Small source of pride”

    2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source

16. “And then my second related stroke of luck was that Professor Ken French came there. Oh, really? Dartmouth. Yeah, he came to educate us in 1989 and teach what we were doing, what we should be doing. And I was as enthusiastic kid there. Well, by that time I was already almost 28. When I was expressing some interest about studying in the US, he was saying it, you should do it soon. You are old enough to do that. And a few months later, I was in the US and it was so lucky in my life because that year I met then Cliff Asnes and John Liu, who later founded AQR. So as my fellow students, I met my wife there. She was MBA student from Germany and would have left a few months later. University of Chicago? University of Chicago. So all of this luck sort of was related to my wonderful first job surrounding.”

    2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source

17. “So, yeah, my really first stroke of luck, I think, was getting that job. Before that, I had been nerdy kid with interest in esoteric things like royal family trees or track and field statistic, not trading. And when I was studying in university economics, I did not really get the passion. The passion came when I went to invest the country's foreign exchange reserves there. And it was very much global government bond markets. So thinking about macro picture, I never then nor later had, I don't know, much interest on single stock picking. So thinking of the big picture. And there were some lovely things. Like I was there in the October 87 crash and saw two-year yields falling in one overnight from 9.5% to 7.5%. You don't see those movements. That's a Giant move, yeah, absolutely. Yeah. So anyway, so that was a great learning experience.”

    2022-07-15 · Masters in Business · Antti Ilmanen on Expected Returns · IDENTIFIED FROM THE TRANSCRIPT · source