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

“What's important to understand about that if you want to get the risk right is that let's take one of the factors the major driver of portfolio risk is growth and equity growth but that exists in equities and that exists in high yield potentially real estate certainly private equity and maybe even other investments and so having a very clear picture of where that exists in all of the investments is really where you need to start.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“We started with municipal bond manager, then we moved into private debt, real estate, and then kind of variations within fixed income, ultimately throughout the whole organization, because there were pension assets and real estate assets as well, I think we ended up with about 30 managers overall. So it was the process that we went through was very innovative for its time. We made allocation decisions based on factors, not on asset classes. So translating a factor approach to portfolio construction to a factor approach to asset allocation, the top down, one is bottom up, one is top down.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“We said, all right, let's take a look at where we want the risks to be. This meant, all right, let's get clear about what our objectives are, and then ultimately when you're talking about risk and risk objectives, you're really talking about the available financial resources. So what can we actually put to work? We're sharing a balance sheet with the insurance business itself. And those risks are much larger. So we had to have a place to start. We said, all right, we're going to have several billion that was available in terms of surplus and then think about where Maybe we don't have exposure, for example, to liquid acids, number one. So there an illiquidity premium is there a risk that we can take on here. So thinking about the different common factors that we wanted to put to work.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“So back in the day, and I don't remember exactly when this was, that group was literally on the floor where my office was when I arrived and the team was much among nine people managing the process and this manager had 80% of the assets. So this internal group ended up moving. I think it was Scudder at the time. And then Scudder had a relationship with Zurich and Zurich. I think swapped that asset with Deutsche Bank. So that team was at Deutsche Asset and Wealth Management was their insurance team. So we got to know those guys really, really well. Sort of like another office”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Who had existed a long time ago and had moved on to an asset management organization and bring in the right kinds of manager. So we had a lot of work to do to transform the balance sheets, to bring in the right managers, to put certain mandates to work. But it was also about process. There were seven different committees that we reported into, bringing them along. If we're going to make changes in a very large organization that way, we've got to bring all the people who are part of it. So that meant financial reporting, that meant accounting. That meant compliance teams. And so what we learned is that all of those relationships also required a lot of work just in terms of how they receive information, how they were working. A lot of it was manual. So there was a number of fundamental transformative things in terms of the organization and how it functioned in addition to the investments. And we wanted everybody to be a part of it and feels”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“So our mandate was to transform, put risk to work in a way that could grow the surplus, but manage the risk in that surplus. There was a lot of fun work to do there because it meant basically taking what was one manager”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Joined as head of investments, I was recruited by a guy named Peter Teuscher, who is the chief investment officer at the time. The timing was perfect. He said, I'd like you to join Firm's Group. We need to transform the investment process just after the global financial crisis, and there was a lot of work to do. And so imagine a balance sheet that had grown by acquisition. There was something like almost 50 balance sheets. And there's a billion dollars in cash. There were state deposits all over the place. There was a lot to optimize potentially. And like a lot of institutions, proud of how conservative they were in their investments. So if you can't really measure where you are in terms of risk, and that means you can't really manage it, what you would tend to do in a lot of organizations tend to do is err on the side of... Less risk.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“So let's turn a little bit to your time at Farmers. And so when you left Wilshire, you're taking over as a CIO. How did you think about what that mission and purpose was and how you structured that portfolio?”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“We brought those models to institutional investors, but that's not at all the right way to approach the probably have different purposes. So portfolio construction, thinking about trading stocks and bonds and training that portfolio over with a specific set of objectives is very different from trying to meet objectives as going back to purpose to begin with. I learned that bringing these very heavy call them point solution systems, and there are a lot of them in the marketplace that had moved into this world of allocators basically that are really not a good solution. And what they produce in terms of information, they're not making day-to-day portfolio decisions.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Drivers. And we tend to not talk about those. So the risk factors, and today that language is used a lot more, but in the days of Wilshire and creating risk models, there was a strive toward work that we undertook to get that risk model fully described for the clients that we were working with, which was the ask manager. So think fixed income wasn't just duration, it was term, it was shift, slope, and curvature, it was credit, potentially other spreads that you could articulate in equities you have a fundamental model. The matrix that you're operating with, the description of risk was the thousands of different factors. Well, that's Helpful to someone who's trading a portfolio, say, of number of stocks and bonds, multi-asset class”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Great question. I've learned a ton. So I would say a couple fundamental lessons that there is underlying and underpinning every investment a set of common risks cuts across equity, it cuts across fixed income. Think about the large asset classes. There are some fundamental risks.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, it took me a long time to get there, by the way, so it was a journey, I would say, that I'm much more aware of that now, and partly it's because I've sat across the table as an advisor, but I've also been interested and I've been a CIA. So those things are lessons really about how people come to make decisions, what information matters to them. And so for me, as a puzzler, I'm fundamentally kind of a problem solver puzzler, I felt like it was time to do something a little bit better. And I believe that it was possible. So that began the journey in five trade.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“So you show up without an investment background, with a math background, and you pretty quickly see, wait a minute, the main tool that starts this policy portfolio that's going to drive returns isn't consistently thought of the right way from the presenter to the decision maker. What do you do with that?”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Or most mean variance optimization problems, you're throwing away the most important information. So think about making a decision about a loss limit over an investment horizon and you have a real balance sheet to protect, but you're not actually taking into consideration the fact that, of course, markets drop down a lot more than the normal distribution loans tell you it would. Along the way, you're going to experience something called sequence risk. So, this is a period of time where returns are coming down over precipitously, over a long period of time. So those two things are not captured in this decision metric either. So where does this leave us?”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“While being more sophisticated, it doesn't really buy as much. And people don't speak that language. They don't speak in statistical abstract sophisticated terms like this. Even if it did, for whatever reason, connect exactly to the risks that matter, nobody's speaking that language. Really, you take those two things into consideration that you've got risks that don't matter, and you're speaking in different language. And then there's a third piece, which maybe models have evolved to accommodate this, but”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“You turn to a benchmark. This was formed by a policy portfolio. Well hold on, what if the policy portfolio is evolving through time and you're beating it, but you're really off track with what risk matters fundamentally? That's really what we're saying here is the fundamental problem. Number one is it doesn't really connect well to what matters to you in terms of risk. Related to this is that most people don't speak that language. And so where have we gone? We've evolved to hundreds of variations on this theme of bean variance optimization. We're using more sophisticated measures, but then we have to calibrate a lot more information about preferences, for example, and other things that drive the model that we may know nothing about. So number two,”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Investment objectives. So the expected return being a point estimate may connect well into, I want to cover expenses and I want to grow and I want to pay fees. But the risk, meaning of variance in the standard deviation only by some strange coincidence would be connected to the risk that the investor actually cares about. That's stunning. So, what is standard aviation? What is variance to an investor who is looking at a balance sheet with a certain amount of, call it reserves, surplus, net wealth? Has a business to run potentially. Those reserves are shared by the business and the investments themselves. Standard deviation doesn't matter. And so where do you go from standard deviation is in practice?”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“And we also have these commitments that we're making. Well, we also don't want to blow up our balance sheet. So these are considerations that become difficult for non-investment professionals to engage. And so what do they do? They turn to experts, consultants, and a consultant will tend to use a model like a mean variance optimization model. And so you can imagine why the motivation is actually it's got very strong theoretical grounding, Nobel laureate thinking behind it, its industry best practice, and it's actually elegant and simple. The expert presenting the information to the non expert group ends up really by default saying these are your two investment objectives. They are an expected return and a standard deviation, so mean and variance reward and risk. These are presumptive”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“I think it requires us to really take a step back and consider what the investments are actually there to do. So, I always start with purpose. Let's think about institutions versus retail or high net worth. But institutions, there are a lot of different people around the finance committee or investment committee table, if you will. All different backgrounds, different perceptions, experiences, et cetera. But they tend to agree why they're there. We're here to make grants. We're here to fund a pension. We're here to make sure that claims can be paid. So everyone agrees on that. But a lot of the people around the table are not financial experts. They're non-professional investors. And so when you make the leap from purpose to objectives, it's very hard. Well, exactly what does that mean? How do we carry out the work is what the objectives are. And so, well, that means we're going to pay out X% per year precisely, and we're going to grow by Y and we're going to cover inflation.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Let's break that down a little bit more because I think even today there are a lot of institutions that in some way, shape or form are using Mark Witz as mean variance optimization for asset allocation. So why don't we just start with the limitations in Mark Witz's model?”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“The research around the world, and it was really fun to work with Kerry. And what I learned then was Despite the fact that a lot of these tools were available and then coming to market, there were a lot of people who didn't really understand how to fit it into what they do. There was usually a champion here or a champion there inside of a large organization that knew the technology and the information would be helpful and if efficiency improving There was no top-down governance kind of component. And so there's a huge variation in perceptions, in attitudes, in practice. And it was all over the place. It was really eye-opening to me to go through that process.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Edges, some tools for attribution, but not in terms of real portfolio construction. I think that was probably early days of those tools coming to market. ThinkBara, Think. But yeah, it was surprising to me. And so I thought, well, there's a lot to learn here. There's a lot of work to do here. Getting into that work, and there's a kind of a little side story here. At one point, we undertook a strategic relationship with the Bank of New York. It was a really fun project that we worked on. And we involved ING and Harry Markowitz. And we did a survey, a risk survey, of a lot of people and a lot of different institutions, clients of Wilshire, ING, and the bank. And we put together this survey, said some things about risk and risk attitudes. And we delivered.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“First and foremost, I was surprised, really surprised that the mean variance optimization framework was applied directly and simply, like even from early days it didn't make sense to me that these concepts, really the point was to say something about how risk should be perceived that it's systematic. These are lessons about how to think about risk, not necessarily to apply it, but I did see those applications everywhere and I thought it was challenging. And then, of course, different and away from that, there were people who didn't have any tools. So I felt like from very early days that there was this massive gap between theory and theoretical applications direct from the source to using nothing and maybe around the”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Institutional investors and the early ones were asset managers banks, mostly in Europe. So the mandate for me when I joined was to help to build risk models. So there were fixed income models, there were equity models, but there weren't total fund analytic models. So our group was charged with building total fund analytic models and really putting them into the hands of organizations that cared about the multiple asset class products or their own balance sheets, for example. And so early days working within analytics at Wilshire.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, where you go from a PhD is you either take the academic route or you practice. And there was a lovely mentor I had come to know at the Drucker School, and he said, look, there is so much to learn and practice is really weird. I would encourage you to go. So I had a choice and I decided to go to work for Wilshire Associates in California and dove into portfolio analytics research, development, think engineering and design of systems for”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, anyway, an empirical piece, and ultimately for me, Very, very early days, I was working with the engineering department on managing this huge corpus of quote data for a year. So kind of early exposure to, if you will, data science and machine learning before it was called that”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Behavior of the interbank market is a lot of activity in the beginning of the day, end of day, maybe even parts of the day. So volatility changing quite a bit over time. So I had information about the individual banks themselves that were contributing quotes to the market. And so you could imagine Deutsche Bank and Sunkjen and some of these big name banks. And I could see that they were active in markets at certain time. But then there were smaller banks, tons and tons of smaller banks contributing quotes to the market. The analysis that I ran suggested that the prices were being updated by the smaller players, not the larger players. And that made sense to me because if you're going to put information in the market, move that market, you had a trade to make, and somebody on the other side could perceive that as information if you're the larger bank, it's possible to balance the trade internally so that you're not revealing information to the market. So I concluded that most of the discovery was happening with the smaller players in the marketplace.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“We ended up in that program really creating one of the first of its kind in financial engineering, which meant bringing together some of the professors from the math department with the management professors at the Drucker School and thinking about, well, what would it really require to have someone who's trained well enough to engage in portfolio design or trading, et cetera? So that's the start. That's where it all began.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Research was on the interbank market for foreign exchange. And I was writing about something called price discovery. I was very interested in the dynamics of information and how people make decisions even then in markets. And so what I was looking for was could we say something about how people formulate prices? What is important? What kind of information is important? Of course, there's permitted information, there's transitory information, the signal to noise. Could we make sense of how things worked dynamically in a particular market setting? And so there's a group called Olsen and Associates at the time that dumped basically a million quotes on a tape and gave it to the academic community. And out of that was Born some very interesting work. And if you've ever heard of the alphabet soup of Arch, Garch, EGarch, EGarch, like this is all about time varying variants. And so this was the application that I had studied at the time. So I probably should have made a hedge fund out of that. I didn't.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Okay, so this was 98. So this is maybe not so early days of hedge funds. Certainly it was the time was a precursor to, as you might imagine, day trading. The internet was just starting to really make itself known to the investment community. And the time was an interesting one if students had come around the world into this program thinking that they were going out to the next hedge funds or trading platforms. A lot of them, funny enough, actually took their stipends and they traded and believed that ultimately until 2001 they knew how to trade markets. So a very interesting time and a lot going on in the field of finance too.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“Feels like a very long time ago now. Think graduate student. I was about to finish up my PhD and I was invited by a professor of mine to create, I guess, a financial engineering program at Claremont Graduate University. And he said, hey, come teach, finish up your PhD. Let's help break this program. And moving to California and connecting to the investment community here through that program was my first step in.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source
“My guest on today's show is Karen Williams, the founder of High Tree Advisors, a new independent consultant that's helping organizations improve the effectiveness of their invested assets through practical quantitative metrics of risk. Karen is an engineer by training who previously was a partner at Wilshire Associates, the chief investment officer of farmers insurance group, and head of client solutions at Hedge Fund 2 Sigma. Our conversation covers the early days of financial engineering, taking lessons to portfolio analytics at Wilshire Associates, and discovering a disconnect in theory and practice with mean variance optimization and the application of early factor models. We then turned to Karen's applying risk frameworks and factors at farmers' insurance, joining two Sigma, and creating Hytree to help institutions measure risk practically. Please enjoy my conversation.”
2020-11-09 · Capital Allocators · Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163) · IDENTIFIED FROM THE TRANSCRIPT · source