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Giuseppe Paleologo

lines on the record: 26
first: 2025-06-21
most recent: 2025-06-21
sittings or episodes: 1
sources: podcast

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“I think that There is also this feature, right? The moment that you say that a factor exists. It's reflexive, right? Yeah. There is reflexivity in this, right? But I don't know that it really explains much of the returns in recent times.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Medium term momentum, I would say, right? Medium term momentum is tradable and it's relatively high capacity, then you have the whole term structure of momentum. So there is a shorter horizon reversal and whatnot. Short interest worked great until it didn't really work so consistently any longer. And then they also assume different characteristics, right? So you start having more crashes and the like.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, so some factors were identified, but then somehow they got demoted. So famously size, right? Conditional on having other characteristics of a stock size doesn't really explain much of your returns. And so it's a combination of other factors. Okay, well, that's one case. Then there are cases where it seems that some factors have been exploited, their capacity has been exhausted, and so you can't make an attractive return of them. There are some factors that still have a low sharp, but they still have a positive sharp. And so every positive sharp deserve an allocation.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that most people with a quantitative background in finance will tell you that regime change is very difficult to detect and to act on in an effective manner. So I think that's been my experience at least, right? So in every possible application, I've tried and it really never works for me. Maybe it worked for somebody else. What I think it's a bit easier to do is to detect regime change in a human being. Instead of trying to use, you know, there are many, many algorithms for regime change. There are Markov-based QSum, completing non-parametric. Instead of trying to act on regime changes in the environment, try to detect changes in the behavior of a portfolio manager and act on that because that works, I think. It usually jives with experience with so that is something that can be exploited.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, no major problems. There are questions. So the first thing that you want to make sure is that if AI, whatever it means, brings to you. You backtest that feature and in a way perplexity has already tested it, it's not a fair play. The performance will, the backtest will look great. So unfortunately, we live in a world where some factors will never be backtestable. So you don't know whether they work or they don't work, right? You just know that you cannot test them in advance. Like a policy agility. This seems to be a very low turnover factor, right? And it seems to be probably a very low sharp factor.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“And it's possible that not in the distant future, good PMs will become good because they can improve on themselves by basically playing or training or having a baseline of an agent that reproduces their behavior. So there is an alter gap, well, I'm not a PM, but an alter whatever, who says, what would you do, right? And you get a baseline behavior. And then you can think about it and you could say, well, I would do something different. And then that becomes an example in a reinforcement learning process where the AI keeps learning from you and you keep improving because the baseline is changing.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“You get interesting data from observing human beings actually investing, and you don't get to see a great PM investing, but I do. That's the benefit.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Number of NVIDIA cards. I don't remember H100 or something like that. So that's one thing, right? The question is really what's going to happen to the slower investment styles. And my view is that hopefully large firms like mine will have an advantage, but it will see, right? Why? Because we do have the scale, we have a large number of PMs, we have a lot of historical data, we have a lot of proprietary data that nobody else has. So maybe that will work out. But how to make it happen? I don't know because things are changing so fast and also I'm relatively a tourist in the area. So I'm trying to learn a little bit more about it.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“In strategies where there is a natural richness in data, you can definitely use, if not deep learning or AI, but you can definitely use very advanced machine learning algorithms. And you do not have a data snooping problem. You do not have a backtesting problem. And so you are in a data rich environment and you can do that. And it's not a secret that, for example, XTX has a very large on-prem.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“But I think, okay, just let's recap the basics, right? So the basics are, at least for the time being, everybody is trying to be more productive with AI, right? So you want to have all your documents, you want to have now, you know, what perplexity has a finance module. I think one day soon maybe Bloomberg will not have the keywords any longer. You just give Bloomberg a task and it will grab all the pieces of information and hand it over to you and maybe you can schedule it. All of this is relatively table stakes. I mean, the authentic aspect is not yet, but it will become pretty soon. I think it's going to be very hard to compute with the likes of maybe Bloomberg, but for sure, let's say... The big hyperscalers. So that's one. At the investment level, it's much more complicated.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“If you are a hedge fund, typically you trade a lot, you have your own data set of orders. These data sets differ a lot. So you could have a market impact model for a quantitative trading group or a strategy, and you could have a different market impact model for hedging and a different market impact model for fundamental investing. And then what you get is basically a term, a function that you place in your optimization problem that hopefully helps you size the portfolio or trade the portfolio optimally. And this is extremely important. Market impact is a very, very sizable fraction of the lost P&L of a firm.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“So you can do it in a variety of ways. It depends, first of all, on what position the firm occupies in the ecosystem. So if you are a high frequency trading company, most likely you are using your own capital because you are So those firms exploit market microstructure level information. Okay, so in a sense, a high frequency trading firm Does not have a market impact model in the traditional sense. They don't see parent orders, right? They execute at a microscopic level.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“In a center group, typically you are part of a larger group and the group will hopefully have large capacity. So these have a larger program, like a larger research program. Their compensation tends to be more discretionary. And that's a center group. Then you have all sorts of other quans. So you have people like me who serve the firm at the center level. I also serve the leadership of the firm. And then you have people doing, for example, execution research, which is extremely complex and interesting, right? So it's not black and white. Like you can do execution research and be responsible for some P&L. It's very, very, very... Rich nowadays and very specialized.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“The fact is that Quant is a very generic label nowadays So there are many, many quants and they do all sorts of very interesting jobs. Some of them are just differentiated because they live in different constructs. So nowadays in a platform, especially in a quantitative one, it's not impossible to see pods and center groups. So that's one distinction. What's the difference? In a pod, you typically have a siloed group. I'm probably not stating the obvious, but you have a siloed group. They don't communicate with other pods. You want at the firm level to have independent sources of alphas and their payout typically is a percentage of their P&L after costs. Okay, and then you're a quant in a pod.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“You can isolate them. You can kind of purify them. Now, there is also the scenario where there are factors that are not in the model and they should be. And basically, they complicate the picture a little bit. But otherwise, if you have a reasonable model, you're going to be able to separate them to understand what's the relationship. create a portfolio that exploits the first one and then create a second portfolio that is uncorrelated to the first one that exploits the second one”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“The short answer without explanation is that you can, but the long answer is a little bit more involved. If you have true characteristics, like I don't know, a tariff and a tech classification that are 100% correlated, well, then you really have only one. You don't need both, right? So, okay. But if I have in my let's say arsenal of factors, if I have multiple factors, they are somewhat overlapping, but not completely overlapping, then you can build a portfolio that separates the impact of one from the other.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“There is alpha, and alpha is basically ideally would be a return that has no associated risk to it. It hardly ever exists. So what you really have are factors that exist at some frequency or in some universe or with some characteristic that nobody else has found yet. And so they can be exploited more.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“There are well-known factors, let's say some variety of value and momentum or reversion. And you can bet on those and you diversify away everything else. And what you get is basically you get some returns that are priced, priced in the sense that, as you know, you pay basically some risk for that, right? So this is priced return and that's great. But once upon a time, these were not public knowledge. If you were lucky enough to be a hedge fund in the 80s, and I've met a few, you know, and you were maybe also investing in Europe, these factors were really working very well, and they were alpha. They were not called factors. The first, I think, published paper is probably 89 for momentum, right?”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“So basically, you can create a portfolio that tracks a factor, and this portfolio will have a relatively small idiosyncratic risk. So it will be truly a reproduction of the systematic source of return that you were observing through the assets. So imagine that this systematic source exists, but you do not observe it directly. It's latent. It's out there. But you can actually reconstruct it with a portfolio. A theme is, let's say, 10 assets. You cannot really reconstruct it the same way because 10 assets are just too few to diversify away the idiosyncratic source of returns of the individual assets.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Third characteristic is that they have to be interesting. So they have to be in some way vaguely interpretable. So you match these requirements, it's a factor. Now imagine that you have Trump factor. Let's say if Trump wins a few stocks will definitely benefit, a few stocks will definitely not benefit from the election of Trump versus Kamala Harris. Another source could be, well, tariffs, right? Another source could be AI. Okay, AI definitely, right, doesn't fit the characteristic of being pervasive because there is a relatively small universe that's affected by the AI theme is likely not to be persistent. So it wasn't here like a few years ago and we'll probably not be here in five years because everything will be to some extent AI. It's interesting, but that's a theme. It's not a factor. That's what I would call a theme. And there are also some mathematical characteristics of a factor versus a theme. Like what?”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Okay, I want to specify a little bit more what's a factor because otherwise it gets a little bit too vague. So there are factors and factors. So there are some factors that are real factors. And what are those? Those are essentially attributes of some kind that you can assign to your investable universe. And there are sources of returns that affect the individual securities through this characteristic. They are pervasive so every asset is in some form affected by this systematic source of return. Number one, so they've got to be pervasive. The second thing is they got to be persistent, right? So it's not the case that I have a lot of factor returns for two months and then nothing for 10 months, right? So that's not really a factor. And then possibly the”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Nowadays. And then hedging at the firm level and at the individual PM levels, which is apparently very simple, but actually it's very deep as a problem. And then we do portfolio advisory services, which is basically you go to PMs, you help them construct better portfolios, you help them understand their performance, which is extremely important, manage their risk, manage their drawdown on occasion be their therapist. But this is what we do.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Okay, global head of quantitative research. Okay, so basically I am the head of quantitative research for equities. And maybe one day in the future I will do some commodities or fixed income, but I'm perfectly happy to serve equities both discretionary and systematic. What we do is, I mean, my group mostly, I mean, I am in meetings, so I don't do any work. So we, in a sense, provide centralized quantitative services for the firm. So the first backbone thing that we do is you develop factor models wherever you can, right? So for equities at different horizons, ideally you would like to develop them for other asset classes, but factor models are the backbone of a lot of quantitative investing.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Really is the number of bets in a sense that you are going to take, right? So I think that probably is, if you have a large number of independent bets or quasi-independent bets, this means that you need to be able to scale your method to a large number of independent bets. And this means that you are in some way a quantitative investor.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“Okay, I think that there are several possible answers. So I'm going to go with one answer that I read in my life as a quant, I think. It's a Wiley book. It's a very good book, by the way. And I think Cliff Asnes defined quantitative investing as basically investing in a large cross-section of assets having a relatively low edge, low expected return in all of them. And so that's his definition. But it's not quite, I think, complete enough at this point because you can also be a quantitative investor trading a relatively narrow cross-section of assets, but with high frequency, right? So what matters”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source
“I guess yes. End of answer, yeah. I think so. I think so. I mean, pretty much everybody uses some kind of quantitative overlay, right? But two different degrees. So I have a friend who worked for one of the Tiger Cubs. And they refused to use Sharp. They refused to use logs in a spreadsheet because they said that they were dangerous. Probably they took the log of a negative number. So, yeah, no, two different degrees, but yes, there is some quantitative culture seeping through.”
2025-06-21 · Odd Lots · Giuseppe Paleologo on Quant Investing at Multi-Strat Hedge Funds · IDENTIFIED FROM THE TRANSCRIPT · source