YouSaid · the spoken record

Karyn Williams

lines on the record: 82
first: 2020-11-09
most recent: 2020-11-09
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Here's why. So he was one of the first quants, like before quant was a thing. And very convicted individual about his practice and his beliefs. And I think it's kind of interesting to talk to somebody whose views are so convicted and who put the work in behind it and who's put himself out there to talk about it. I mean, it takes some guys to do that.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“My biggest mistake was Joining a firm that was large had a lot of attraction to me. I saw what I wanted to see there. But My perception and what I had hoped to accomplish My decision process wasn't fully baked. Probably I saw what I wanted to see. It was naive of me probably to believe that I would go create and do things that I had in my mind. But the organization itself had different objectives, and those objectives weren't necessarily in concert. And so I learned that I have to pay much closer attention to the, take all sides better into consideration. not just writing down the pros and cons, but actually taking the point of view of some of the people who may have been there or who had careers of their own to drive and determine. And I didn't do that. And I didn't get on paper precisely what I thought I was hoping to accomplish. So I learned to pay closer attention and to be clearer.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“So piece of reading right now, there are two things that I'm doing. One is that I'm reading about the history of Rome Roman civilization, and I'm paying in particular attention to The different leadership through time in Rome and the bigger cultural questions that they had at the time and the stories that they were telling of themselves. It's fascinating to me. That's number one. But number two is I tend to track, this is where I do train my bot well. I tend to track and like to read things about physics. And in particular, I'm interested in entanglement. I don't know if you know what that topic is, but I love reading about it and black holes, and that crazy world of science that's well beyond my reach, but definitely worth exploring. I would if I could.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“I kind of feel like with my peers, it's a very interesting thing that's happening in the business, it's changing so much, and there's just been a lot of fallout. And I feel like the role that I can play is in some sense just listening And helping them to kind of shape their own idea about what is next for them.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“While I help out students all the time. And one of the things that I encourage students to do, and probably very much like my father shared with me, was to really take some risks while you're young. You have a lot of opportunity in front of you, a lot of runways. So really explore what you like and what you don't like.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh gosh, that's easy. It really bothers me when the conversation veers toward the small and insignificant and backward-looking. So think. Wow, this portfolio has these 15 different investments. You delegated that decision and that decision's innate. Anyway, imagine. But there's perhaps one more, and that is that sometimes product is sold, not bought. And that really bothers me when it ends up in... Portfolio of someone who really can't afford for that to be the case.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“I wish I would have understood myself better earlier in life. Of fundamentally who I am, I feel like I really know that well now, and that's probably through a lot of different experiences. And maybe we can't really play that game as well if I knew I wouldn't have ended up here. From a very young age, I was a puzzler. I just sort of puzzles. I'm sort of known in the neighborhood as being the puzzler. And I was a crafter. So I did crafts, I did puzzle, I was problem solving all the time. And so I think fundamentally. From the very beginning, I was an inventor and an engineer, and it took me a long time. I am in my fifties and I'm starting to do this. Although, you know, I did it inside of organizations. I'm now embracing it fully and it feels fantastic.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“My father was a scientist. He was a microbiologist and research scientist, and I would say fundamentally he was an explorer. We grew up in Arizona before a lot of people were there, and he would take us on the week as all three of us and just go out and we would experience things. And it wasn't necessarily like there was a plan. We just, we enjoyed and we experienced it. And I remember having a conversation with him once. I don't know, I think it was in graduate school. And maybe this is the time when you start to ask your parents, what do you really think about the world? And I said, well, if you could have changed anything about what you did, what would it have been? He said, I would have taken more risk. Have tried more things. I would have put myself out there. And I took that to heart.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“So right now My biggest pet peeve are bots end of the day, long day you're reading the news, and I don't know about you. I haven't trained my robot very well. I'm getting news, I'm getting information from bots. It is absolutely absurd, and some of it obscene, and I keep telling my stop. But is a pet peeve of mine to continue to be bombarded with information and news that is just meaningless? And yeah, it really annoys me.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Okay, most important habit. Making a cappuccino. So literally rolling out of bed, pegging the dog on the way to the coffee machine or turning it on. And it is for me about the art and the experience. And just, it's not so much what it tastes like, although it tastes great. It is the process of making it and then starting the day. That's my most important kind of.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, it's a little bit. So it's a hybrid. It's not a road bike. It's not a mountain bike. It's a bike that you can take on the road, but then if you find a great gravel route, you can just hop on it and go. That's what I want. So my husband and I do that a lot. We have a lot of friends in the Viking community. We're very involved in biking and Davis Finney masters team and things like that. So definitely bike riding. And over the weekend, you would have found me north of Ohi biking. Okay, it was adventures in baking with Karen was 108 degrees. Yeah, that's what we do and have a lot of fun with it. Yeah.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“But what I need specifically given my objectives, my desire to hit those objectives is a very specific portfolio that you can shape and build for me. That is a game changer and why I think this has potential. So now you've got an organization that can evolve to actually provide a solution as a service, not as a passive product and not as an active product.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a win. The other side of it is, and very interesting side of it is, there are a number, as I said, of asset managers who have, in contemplating their next life effectively, who are coming to us and saying, hey, how would we look inside of a portfolio? And I didn't expect that. I didn't expect that asset managers would be curious about that, but it's super interesting. So, if you have a way of characterizing your future state of your portfolio, And You know that heading a certain set of risk exposures improves the outcomes, like really can shift and change and shape the outcomes. That's a different conversation. With asset managers today. There is the potential to tap an organization and say, I can't get what I need off the shelf. It's not going to come in the form of an ETF”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Very interesting world of change. And so I said, all right, let me take a step back. How would I empower this world that's changing? I don't want to compete. I don't want to create something new. So the way that we're working is to facilitate that change. To put the technology into the hands of the practitioners. I don't want to be in a position of serving the 100 clients directly. I would much rather put this in the hands of the practitioners already out there who have established businesses but know they need to do more.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“From the very beginning I did not feel it was beneficial to create another organization to compete head to head. With the existing players. First of all, the industry, as you probably know, is changing a lot. So you have consultants that have moved into asset management through outsourced chief investment officer products. You have asset managers moving into advice in the same business. So there's a huge amount of crossover coming from different capabilities. Ultimately, there's just a lot of change. And then you have a number of asset managers that are reconsidering who they are may already recognize that given data science techniques and some of the technologies that are being applied in the asset management lifecycle have changed the game and they haven't changed. So they're rethinking about all right what products are we really bringing to market? Maybe we don't bring products anymore. Maybe we bring solutions. So you have this kind of”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“This or that? Why are we doing that? Why are we spending all of our time talking about individual strategies and individual deals and individual decisions that a manager has made when we have a portfolio that's comprised of maybe 10 or 20 managers? We're not at all talking about where we're headed and it's never been more important to do that.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Don't add anything to the outcomes? Do we really contribute to the outcomes? So that is a question that easily can be studied. And as I said earlier, net of those common risk factors, is there anything really being produced is ultimately the question that's embedded in the model and being asked. So one of the pieces of outfit that we share are the factors and what the alpha estimates are. It's very easy to begin the conversation. Well, I'm not sure that that's really productive. I'm not sure that this is really our focus. I think that what's exciting to me is that a lot of the people in the organizations that I've worked with start to say, well, why are we having conversations about”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's exactly the question that are being asked. And so we're just getting started. I'm sure we're going to have a lot more use cases to talk about. But because the system is... For the question, what if we add the alpha?”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Your initial work with this have you seen the conversations in the boardroom change from the old why is that manager underperforming to, well, if we take that manager out, what does it do for our metrics?”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Model and the metrics that we've created need to be independent is that at some level this could be a monitoring product. In other words, this gets reported out to an investment committee independent of the consultant or independent of who's ever at the table as a strategic target. So the board members don't have to focus on say that particular manager at this time or look backwards, but rather where are we headed That's the board's mandate, if you will is the strategic objectives of the organization and are we on track So maybe a pie monitoring score type product”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, we quickly moved from traditional consultant to very different kind of business. And yes, they thought about productizing and roughly falls into a few areas. One of the things that if you were a trustee sitting around the table, you might ask is what's the probability I'm going to hit my objective? You don't know that today. You just don't know. So that's where we're getting a lot of questions is can you run a diagnostic? So that for us is an important product because it begins the conversation about the framework and it extends to other people what we're doing. It's a part of Mao thing. It's a lot of fun to work on those projects. People feel really good when they've gone through them because you can't just offer the model. You actually have to help them with the decision problem that they have. The reason why I feel very strongly that this work in this”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's no reason why you wouldn't be able to put in your own probabilities, set your own means and variances for the different states, and study. And that's really what it is about, is to study what the potential. So it doesn't replace people. It's a supportive decision tool.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“It is possible to say, all right, these are what the factor exposures are expected to be, or we can estimate them if all the data don't line up to backcast so that we do have consistent information. So that's the approach. And what we found is that as compared to what's typically used, like a log normal model for allocation, there are measures of model fit and comparative model specification that tell you you have a better model and we do. So there are measures that say, yeah, okay, we're going to ding you for having putting more data here. We're going to ding you for adding more parameters, taking all that into consideration is a much better description of how the world works. But suppose that you're a super user and you're the chief risk officer and you have views.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Getting into a little bit more of the meat, the way that we think about risk is through factors. So it is possible in the way that we've structured things to draw upon the returns that a manager would give you or that portfolio has. But if it doesn't,”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so there's a probability that you'll be in one state and move to the next good state moving to a crisis state. And then when you're in the crisis state, the probability that you move back. So it is possible to estimate the probabilities of being in those states using a very long history. And we know the probabilities change through time, but we started in a particular place, which was to use as much history and accommodate as many crises and policy responses, frankly, that have happened over this time that we have data. And so those two, if you will, regimes and the probabilities are informed by the data exercise, if you will”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“So let me take a step back and describe how we've approached this. So, pi is a framework, is a decision framework can be parameterized as a model in a number of different ways. It doesn't have a prescribed distribution or say whether or not you have to use securities or returns. It's a very general framework. So what we've done is translated the pie decision framework into a system that uses what's called a regime switching model. Our goal was to not necessarily predict what was going to happen over the next five years, but give the range of potential outcomes. In a way that would give a path experience that would be realistic. So, what we have built really is a model that accommodates kind of two states of the world. One is kind of a normal market state, the other is a crisis state.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, one of the things that happens is that It changes the focus from, as I said, from product to overall risk. And so a portfolio that has a long list of managers. can be reframed or restructured to one that's smaller and more efficient and easier to manage. And so one of the conversations is, well, can I get there more simply? Number two is They start to think about the probability of losing. And that's not something that they've losing mean to me. I don't ever want to lose anything. Am I willing to lose 5%? So there's a more fulsome conversation about the trade-off between growth and risk.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“When you go in and you're working with someone and you're calculating their pi and their eta for the first time, are there common things that you find that cause people to make change? Like there are sort of systematic biases across some traditionally structured mean variants portfolio that comes out when you start looking at these metrics.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“You can evaluate that. What is it worth to you? Well, hold on. This is worth a million dollars a year to me. I'm willing to pay a manager to do that and no longer sticks out in the line item as a sore thumb of I'm paying and paying, but I don't have any value.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of moving from the 60% to the 70%, what is that worth to you given your preferences, given your objectives, and so by design, it is tied to what you want, it's custom to you, and you can actually translate that value into dollars. So if you only changed, for example, the risk exposure of the portfolio, you could tell somebody what that is worth to them. That's powerful. That's informative. That helps to make a decision. I think it does a couple of An allocator interfaces with their portfolio on the market. If now you have a facility with the language of risk, that becomes your focus, not product, not even individual securities necessarily, but the chance of achieving the objectives you set, and so things like tail risk management.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Your advisor might come to you and say, Hey, Ted, I can actually improve this by 10%. What you might say as a trustee, how important is that? So should I do it? Is that a lot? What I wanted to do was translate changes in those probabilities to dollars. So the second measure that we defined is a measure called ADA. I borrowed it from thermodynamics. It was like the one Greek letter. Small letter H, not in financial services. I grabbed it. It's a measure of inputs to outputs efficiency. And it is Ada is the amount of money that you would need to add to your current portfolio. in order to hit the higher probability portfolio. So it's a measure of value.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“So there's an opportunity to have an interplay now and a discussion about preferences and these objectives that you'd like to hit in probability terms that everybody understands. So this innovation moving from a language about point estimates and arcane language to one where I'm talking about things that matter to me and I'm putting probabilities on those and I'm doing a weighted average. That's what pi is. a summary measure that you can set as a target. And there's a lot you can begin to do with it. So that's really where we started. But it wasn't enough to me to say Ted, your portfolio has a 60% chance of heading the objectives that you set on average. It wasn't enough to me”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“I also care about not losing any more than x percent, so already we're generalizing the idea that you have multiple objectives and then decisions made relative to those objectives. So I wanted to move away from this idea of a point estimate, an expected return, to a probability because people understand probabilities. And so we said, all right, well, what might work is a simple summary measure where you have these set of objectives and you have the probability that each of them will happen. Well, okay, puted average on those. What is that weighted average? That's your preferences.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“So it's very nebulous. Well, what does that exactly mean? So, all right, let's transform the language from standard deviation or some other metric to a choice parameter that they could actually get, which is a lot limit. Thinking about percentage loss of their assets or portfolio. Let's just use that as a place to start. Okay, great. So we started to work on a model that would generalize those choices. So it wouldn't just be a loss limit and a return target. It could be a number of different objectives that you had. Hard objectives. I need at least to hit this return over this period. But maybe I have a stretch goal and maybe I care about that too. Maybe it's higher by two or three percent.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“And so I was working on prototyping an analytical system, a decision system. And I ran into a problem. I thought, well, I could buy off the shelf of mean variance optimization tool, but I don't want to practice that anymore. Let's really do this well. So I approached a friend of mine at Caltech JAXA Civitanic, and I've known him for a very long time. And I basically showed up one day and I said, we have a problem to work on together. We're going to do this. And I didn't know where it would take us. I don't want to assume what Ted's utility function is. I don't want to assume that meaning variants comprise that. That's one thing. Number two, I didn't want to assume that the world was normally distributed, that markets would behave them. Simple. Number two. I also wanted to make sure fundamentally that people could make trade-offs and risk in ways that they could understand it.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Maybe another step back is as a trustee of a so I'm a trustee of a public radio station and I'm the treasure and chair of the finance committee and I've been involved with that organization gosh I think almost 10 years now Early early days I helped them to get out of an expensive managed account program and into one where the finance committee could kind of do it ourselves, which meant setting those objectives and having a very low cost program. And so early days, I wanted to take that very model and bring it to some of the most underserved, which would be the smallest endowments and foundations. So that was kind of where my journey began and I thought, well, there's much more to the story here, even if I create this effectively low cost product, I still want to be able to support better decision making.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, I did. There are different motivations, as you might imagine. However, with, say, a hedge fund and a very large organization and its purpose and its intentions versus what I ultimately wanted to do, which was to be independent. I felt like this is generally true in financial technology especially. There's huge value in having an independent voice and not being in a position of having to defend or deflect the fact that this technology was created by a firm that wants to sell these certain kinds of products and solutions, I felt and feel very strongly that that kind of independence needs to be in place in order to be credible to fiduciaries. And if I wanted to make something that was of value to everybody, not just a select group of clients that I needed to just bite the bullet and do it.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Being on a journey of creation and invention for me personally is that's me, that's what I like to do, transformation, invention, and really having that opportunity on a much larger platform is hugely appealing. The work that I did there was exciting. We had a team of what I would call portfolio research analysts, these bright kids coming out of some of the best schools, and we had a team of engineers and taking the combination of the two to create effectiveness was really what that position was all about.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I did. I was recruited to Sigma was on a journey to do much more for their large and sophisticated clients around the world. There were a number of questions coming to TuSigma about portfolios and portfolio construction, as you might imagine. I mean, here you have the world's Premier Data Science Hedge Fund, they know a lot of things. They have a lot of very right people and systems and processes. One of the things that attracted me to that was Having a scientific approach to the investment process myself and having built a process that was at farmers highly productive, I thought, well, They want to take this intelligence and offer it to a much wider group of investors around the world. I thought that was very exciting. And it was also a little bit of what I wanted to do and see because”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“That is so specific to the fund that you're working with. You really have to hold an index, something like 500 securities in order to know that you're going to actually hit one of those 0.5 home runs. Anyway, the work with respect to, say, private equity, bio venture capital, the approach there has to be one by one by one. And so it becomes a conversation about, well, Kind of access do I have? These are more qualitative discussions than they are quantitative discussions. What kind of fun are we a part of? What's their track record? And what are their expectations? Net of fees, what is the chance that I'm really going to have something that's unique here? Could I model this as levered public equities, for example, if I know the leverage of the fund or I know the leverage inherent in the positions they hold?”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“What about in like a traditionally thought of venture capital fund? Don't know a return stream with whatever it is, five bagels, three not so good, and one astronomical return. I don't understand how you can think about mapping that to the same types of factors you'd use in the public markets.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Oh, yes, that's right. It is the case that there are products that don't have any history, even though they are using public market securities. Very similarly, if you have private markets or assessed values, you're going to run into similar kinds of problems. So what do you do in that case? So the conversation is, well, OK, so tell me what risk factors do you expect will drive your performance. Now, if a manager can't really tell you that, then you've given that manager just a wide open mandate and you don't know what you're going to get. So it's helpful and useful to have a conversation about what the expectations are going to be. So, in some cases, we used those expectations and simply modeled. So, if you have a time series of returns that corresponds to a factor, You have the expected exposures, then you have a place to start.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Ran those analyses in a vacuum. We always shared the results with the managers that were presenting to us. And in many cases, they were surprised. They had never done this analysis in their own portfolios. And what we found generally was that a lot of times the factors would swamp the good work that they were doing on the individual positions in the portfolio. So all this great analysis and research being put into individual decisions, but macroeconomic effects or big deviations from maybe where their expectations for markets were going would just crush their performance. And so if you did an analysis for them, it was also a little bit of consulting. Hey, if you controlled these things, they're sort of an afterthought. Maybe you would have better performance. A really healthy conversation.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“We would gather that information and run it through our model. So we were analyzing managers' performance as a part of the decision process, where were the factors in the strategy, which factors were they significant? Were they not significant? these basic common factors was there something else that they were producing could we call that alpha we weren't necessarily so interested in again defining every single one of the factors but broad brush could we take that into consideration and were they productive net of some common factors net of cost was there something left and there were a lot of managers that actually went through that process and had some performance and that to our mind was was useful information would suggest to us that this is alpha and that it's consistent through time and here are the factors so We never”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a great question. When we went through the manager search process, one of the things we asked for was a representative return stream, which is just One observation, time series observation of the distribution of that investment process, reflective of how they work and how they interact with markets.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm curious how in a portfolio of external managers once you've identified these factors, there has to be some mapping of the information you have at your disposal. In some cases it might be security level and in some cases it might just be an infrequent return stream. How do you bring that together to have conviction that your exposures to a certain factor are accurate?”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Factors because it's appropriate to their particular case. And I think that's largely where we're headed in the market for allocation and thinking about how the world of investment management evolves with technology and better information. That's one of the things that I would see coming is a refinement of the problem and the information that we use to make better decisions.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“You said, okay, here are the risks, and we're going to match basically the duration in term and credit, and the rest can be put to work in these other factors in a balanced way. So that's how we approach it. And the framework is not necessarily one that would only apply to insurance or pension. It's a general concept. If you shifted from an asset allocation approach to a factor approach, and you really wanted to get very clear on what the unique risks are that if you ended up in a crisis, would tend to not be correlated asset classes are, factors by construction are not, and those factors were custom to your process wouldn't matter if you're a foundation, your endowment, you're a more sophisticated investor, you're sovereign wealth. There are a number of different investors who may decide to tweak one or two of those.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“That we could operate with that would make sense to the managers as well and would be statistically robust would explain return, smooth returns over time long term. So those included an equity factor, a duration factor, a credit factor. We had term which was really representing inflation risk, commodity and illiquidity. So very, very simple set wasn't just enough for us to think about describing the assets in the portfolio. We also wanted to describe the commitments. So if you're thinking about putting surplus risk to work, you have to think about what are the risks inside of the commitments themselves to changes in rates, term, or credit. Now, in property and casualty, it's fairly short durations, not like a pension. But we optimize that way.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“So taking a step back, we had some what I would call kind of fundamental drivers of what we picked and also robust statistical drivers for what we picked. One of the things we wanted to make sure that we did was pick a sufficient scent that people could understand.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source