YouSaid · the spoken record

Sandy Rattray

lines on the record: 76
first: 2021-08-06
most recent: 2021-08-06
sittings or episodes: 1
sources: podcast

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“Exist anymore. It does exist, but it's really much smaller than it was 20 years ago. And that's what everyone sort of wanted to do. And then there were other things which were apparently less interesting, like understanding equity indices or building quant equity models or something like that. And those turned out to be much bigger things. So I think the second thing which I realized, which I wish I'd realized and understood 20 years ago, is the glamorous stuff is not always the stuff to go for. Often it's the stuff that actually people sort of think maybe it's a bit boring or something like that. But there are very often the big opportunities lie in the stuff that people think is a bit boring.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I think 30 or so years ago I think the thing that I most didn't realize was how much more tech and quant focused the world was going to become. And I slightly underemphasized my quantum tech skills at that time. So that's the first thing, I think. And I shouldn't have done. Today it all feels very obvious that tech has dominated our lives so much and behind most tech, there are a lot of algorithms. But 30 years ago, it wasn't so obvious. So that's the first thing. I think the second thing that I wish I'd known 30 years ago was that it's very easy to gravitate towards the glamorous businesses. So when I was sitting on trading floors at Goldman Sachs, then the glamorous bit was trading what we call the exotic derivatives or the more complicated derivatives contracts. But actually that business almost doesn't”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“My perspective learnt that I had some skills which may be differentiated me a little bit from the core skill of all these other people that were good at math. And those, in my case, making decisions. I think I remain good at making decisions. I can see things. I don't have to spend a lot of time thinking about it. I can decide and move on and have too much regret. And I learned that I think better than many quants at communicating quantitative things in straightforward English, which most quants are not very good at. And so I really tried to work out what are my other strengths that my differentiating strengths and tried to use those. And I would recommend any quant workout, if you're just going to go straight for a math competition, you know, there's some people who are pretty damn good at math out there. So you're going to have to think about your extra strengths, the things which separate you from the crowd.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“So, my advice would be not to get too narrow too quickly and to try and build as broad a range of experience as you can. In my case I did quite a few things in the early years of my career and they really turned out to be differentiators for me later on so I worked a bit in corporate finance, I worked out it wasn't for me but I learned a heck of a lot in my couple of years of doing corporate finance. I worked at fixed income, in equities, in credit. I worked on the sell side as well as the buy side and that was incredibly valuable to me. It gave me just different approaches to problems when I came across them. So I think that's the first piece of advice. The second piece of advice I think is that like most quants I thought I was good at math and I probably wasn't bad at it but it turns out that actually there are a lot of people that are good at math and for my”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“And actually, there are very strong parallels between music and architecture as well. Architecture is all about rhythms. People often don't see it, but they're there.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Another sort of core part of my life is I try and play the piano for at least an hour every day and that sort of straightens out my mind at the end of the day. And in fiction, I'm really a sort of enthusiast for mid-20th century writers, so Treeman Capote or Graham Green or sort of that group of writers were all my favorites.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, so I am very interested in architecture, and so I tend to read relatively quirky and eclectic books. I am currently reading something about Nordic modernism, which I suspect will not be that popular with your audience. It's a niche area. I think architectural theory is something which I'm very interested in in another life. I might have been an architect. So that's sort of one area of interest for me. I'm actually a keen piano player as well, so I know you asked about books, but I play a lot of music. And at the moment I'm playing some early 20th century music by Debussy, which drives my family nuts because it's very hard to play. But if you play it well, it sounds good. I'm not sure I've mastered how to play it well yet.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“People, but I really learned, I think, both how to manage people and how to get to the core of a problem, I think, how to work out what was important and what was not important and not to give different factors sort of equal weight when you're making decisions. And I learned that differently from each of those three people who are really sort of my core mentors.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I was very fortunate in the first 15 years of my career as a Goldman Sachs. It was an outstanding place to work. The people that I particularly worked with over that period were really two or three folks. Manny Roman, who today is the CEO of PIMCO. I worked with pretty much 25 years, both at Goldman Sachs as well as at Man Group before he went off to PIMCO worked with a fellow called Girish Reddy, who went on to run a funder funds business called Prisma, and a fellow called Mark Zurak who went on to be a professor at Cornell. And I think it was important to me to have a variety of different people to learn from and to sort of build different experiences. All three of them are extremely different.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm not a huge watcher of things on streaming services, but I have been watching a re-watching a series of films by a famous British actor called Bill Nae, written by a playwright called David Hare, the first of them is called Page 8. And they're quite sophisticated plays about an MI6 agent and his life struggles. So that's what I've been streaming. You can find it on Netflix, page 8 is the first of them.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Same sorts of risk models and the same sorts of alpha models of return forecasting models in credit that you've had in equities for a long time. So I think my real thing is that everything has become more quantitative and I think it is going to come a whole bunch more quantitative over the next 20, 30 years.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Used to be people shouting each other on a trading floor. Today it's all machines in almost every market around the world and very sophisticated machines, very sophisticated algorithms trading with each other. So what I think I've really seen is everything in markets has become more quantitative. But then there are some things which have been kind of unattainable so far. Credit markets have remained stubbornly sort of immune to being taken over by more quantitative strategies so far. Private equity is the same. It's really done in the same way as it was 20 or 30 years ago. And I think that will probably change over time. We're certainly starting to see that incredit, for example, where the markets are starting to trade more like equity markets or futures markets. And it is starting to be possible to build this.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Battle with the discretionary people. And I must say, I don't view it that way at all. I think that everyone is becoming much more quantitative in the way that they build and run their portfolios. The tools that we all have today on our Bloomberg terminals or on websites or products that we can buy from third parties or build ourselves were essentially unimaginable five or ten years ago. And everybody's got them. So give you an example 15, 20 years ago I was building quite sophisticated screening tools that would search equity markets for opportunities. Today you can basically do what I built on a Bloomberg terminal. So everybody's got it or everybody that's got a Bloomberg terminal has got it. So there's been all investors, not just the quants, but the discretionary as well. They've all become more quantitative. We've seen it with trading as well, trading.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“I think firstly it's actually a bit striking what hasn't changed. So a lot of things haven't changed. Many of the standard models today are basically the same as the standard models 20, 30 years ago. We still use black shoals for pricing options. We still use the barrow risk model for calculating equity risk in portfolios. Are we still send data in very similar ways to the way that we sent it 20, 30 years ago for the most part in a really terrible file formats, but nobody seems to have come up with a better convention that everyone will accept. So there's a lot of stuff that hasn't changed. But I think there are some things which have changed. The first is that people often like to sort of characterize the world as the quants versus the discretionary people. So the quants, you know, the model driven people in some sort of”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Might sound like science fiction and at a certain level I think it probably is science fiction today but five years ago if you said well machines will process images will process pictures better than humans I think people would look at you a bit funny and say you know well no not really now you know you have that on your phone you just type a word into your phone into your photos library and just watch it happen in action it's just extraordinary how it will find all the pictures that reflect the words that you've typed in. So machines definitely do process images better than humans. It's well known, for example, processing x-ray images looking for cancers is much better done today by humans, by machines and by humans. You might want the human at the end, but you want the machine to do all the sifting type work. And so one example of machine learning is getting machines to understand text.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“If there's one thing they don't ever do, it's move in a linear or straight line fashion. They move in every shape you could imagine except for the straight line. And what machine learning is really trying to do is to say, can I find much more subtle patterns than the straight line, which is what most of finance actually ends up using for modeling? And here are some examples of that. One that I'm particularly excited about is what we would call natural language processing, which is having machines read text. Now we all know that there's far too much for us all to read. Nobody can read every analyst report, every company earning statement, every annual report, attend every investor a day. This is too much. So wouldn't it be wonderful if you could have machines do all that reading for you and tell you what to think at the end of it?”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“So, what we're doing with machine learning is we're really saying that financial markets have patterns in them which you can dig out and profit from if you look hard enough. The problem in financial markets is that the patterns are pretty weak. They're not simple patterns. People like me would say there's a low signal to noise ratio. There's a lot of noise and not very much signal out there. So what are we using machine learning for? We're using it for a number of different things, but the underlying theme is that most models that people use in markets, and you could even think of it just as a value model, you know, PE, for example, price over earnings, that's a linear model. It seems to sort of assume that price goes up in line with earnings. But we all know that when you look at markets,”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“That you need, it's a very competitive business, and you need to stay ahead all the time, and you need to carry on innovating all the time. And if you don't, then somebody will eat your lunch. So from our perspective, we're always building new models. We're always coming out with new approaches to estimate risk. We're always worrying about how can we find a new alpha source, what might go wrong, and how a market's changing and their structure, this big effective more retail investment in retail investors, in equity markets today, how should we respond to that? That's really something which is just a very ongoing and continuous form of place for us to invest and where we try and get the benefits out of that over the long term.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“On a website for other people to download it if they want. So why on earth what would possess you to do something like that? And the reason that we do it is that that then provides advertising to people that we're actually really serious software developers and that we take our code really seriously. And if you're a young software developer, you'll probably see the stuff that we've published and say, well, you know, actually I wouldn't mind working in a place like that because code and technology and standards and all those sorts of things are really high at this firm. So that's how we think about investing in technology, investing in developers, creating a culture where developers and quant researchers really want to work. And the reason for that, why would we carry on doing all this investment? It is really...”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“A sort of a generic thing like buying a loaf of bread or something, it's just not. It's the best developers, hundreds, maybe even thousands of times as productive as the average developers. So getting those best people into your organization really important and thinking about why they would want to work for you and not want to work for somebody else. That's pretty important. So I think for us, we felt that we can have an edge by building better technology than you can buy off the shelf. And then in order to get that, we've invested a huge amount in providing a good environment for quantitative researchers and technologists to operate in, just to give you a sort of a side example of that. So that means that we pay our developers to write code for us. And then we go and stick.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so I mean, that's the first thing I'd say is that we essentially build all of our own technology. We don't really buy technology. We buy the hardware, of course, but we write all the software, all the code ourselves. And that's because we think that the things you can buy off the shelf, well, everyone can buy it off the shelf, and therefore it's not really going to be a competitive advantage. It's going to be maybe a base standard. I'm not trying to criticize the external products. I just think that if you really want to have an edge in building risk models or building short-term forecasters of risk or return or whatever, you need to write your own code in your own software. And you need to put a lot of effort into that. And you need to create an environment where you can hire the best software developers. And I often see people saying, well, I hired a bunch of quants and I hired a bunch of developers as if there's”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely, yes. And we've talked a little bit about how people ask me at conferences forecast the next black swan. I think it's actually the question I get asked the most. And I'm a strong believer in this phrase that there's no such thing as a bad question. But I think that one actually might be the bad question because by definition, you can't forecast a black swan. That's kind of what a black swan is unforecastable.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“You're buying the futures that they're very expensive to run. So you need something that you can actually put up with for a period of time. I often see people that go and buy those more expensive strategies and they do it for six months or 12 months or 18 months and then they give up and oftentimes they manage to give up just before the next bad event happens and that's a terrible outcome.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Action more slowly, but infrastructure that could behave very differently. Hedge funds, if they're good hedge funds, should have lots of protection strategies built in and lots of short holdings as well as long holdings and so should be less sensitive. We talked about CTAs a little bit, one of the few strategies which has a right tail to it rather than a left tail. That could be part of your list of strategies as well. I think The core things from my perspective would be recognize that you're not going to be able to forecast the next difficult event, number one. Number two, if you can't forecast it, then don't pin all your diversification on a single thing. Have a range of protection strategies out there. And number three would be make sure those protection strategies are not too expensive to run. And that, of course, is the disadvantage of buying put options on the SME.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I think you can do direct hedges, but they tend to be very expensive. So you could go and buy futures contracts on the VIX or something like that, but they will turn out to be very costly for you over time, as we've talked about in our earlier sections. So more likely what you need to do is to think about assets that will just behave differently to equity markets. And as equity markets have become more concentrated, especially into tech, it's to be precise about that. It's tech and communication services are the two classifications that people use today. As it's become more concentrated into that, into those sectors, then you need, I think, to think about things which will be not so affected by negative price move in those. And I think that private equity in the end has a lot of equity market exposure into it, but you tend to see the price.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“That here we are sitting in a relatively comfortable moment in markets currently and if we're fortunate then the summer will be enjoyable for all of us and not too noisy. That's a great time to be thinking about your plans for how you'd respond if there was a negative volatility event.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that right now we're in a relatively quiet summer period and so markets have been relatively stable. But looking beyond just the short term, then this lack of diversification in markets definitely means that we should expect to see bigger moves in both directions just to be clear, both upwards and downwards. It does not mean that markets couldn't go up a whole bunch more from here. It just means that they're likely to be more volatile than we've been used to in the last few years. And so I think it's really having a plan of action and being prepared for how you respond to that. Because in the end, for most of us, the big up moves, I mean, maybe we were underinvested and we have a bit of regret about it, but you don't have much pain from the big up moves. It's the big down moves that cause all the pain and cause the bad decisions to be made. So I think it's having a plan of action. And I would argue...”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“As risky as they've ever been from a strategic perspective means that question is actually as important as it's ever been to think about.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a very dangerous period to look at when you look at equities in bonds. Over the last 20 years, when equities went down, bonds nearly always went up in price. And so we've got used to this idea of bonds being the protecting asset. But if you look before then, and you can look back in hundreds of years worth of data, both in the US and then also the UK, where the bond market started earlier than the US market, you'll see that for almost all of history, except for the last 20 years, when equities went down, bonds went down at the same time. And so for me, I think it's a very important question for investors, which is you need to balance the risks in your portfolio. Are bonds the answer to it? In my view, they're probably much less the answer than they were historically. So then you need to look at other asset classes and think more creatively about how you do that. And the fact that I think that equities, public equities are”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Numbers, then I don't think anybody's going to argue that high inflation is good for government bonds. It's clearly bad for government bonds. And so your challenge is that the way you built stable portfolios in the past is balancing equities and bonds is really much less suited to the current environment than it was to the past environment. So what can you do about it? Well, I think what most people that I speak with at least are thinking of doing about it is saying, well, I need to own something other than Treasury bonds to balance out my equity risk. And for some people, that's private equity.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, look, I think it means firstly that you need to be just aware of this, that the market is so heavily concentrated. I think what can you do about it is probably the real question. And I think that this is a pretty big challenge for people because historically the answer was, well, if I want to build a balanced portfolio, then I'll hold some equities and then I'll hold some government bonds. Often US Treasury bonds as the ballast, as the thing which gives a bit of stability to my equity portfolio. But where we are today, I think people are much less convinced that treasury bonds will be the ballast that they have been historically. In particular, if we continue to get high inflation”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Then you'll see that tech is a bigger portion of the US equity market than it has ever been, including in the late 1990s in the tech bubble. So you have an incredibly concentrated equity market, both globally into the US and also by sector within the US. And for me, that means that this is not sort of looking at the VIX today, tomorrow, yesterday, whatever, more strategically. The market feels much more likely to be able to produce unpleasant outcomes because the only freelance you have in finance, the diversification, you have the least diversification I've ever seen.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“So the reason that I think we're in this highly or much riskier environment than we've been in is because markets are much less diversified than at any point in my career. And so, you know, I started trading markets when I was at high school in the late 1980s. And at that time, people got very worried that the Japanese market was around 50% of the MSCI world. Well, today the US market is two-thirds of the MSCI world. And that's the highest weight it's ever been. So it's the highest weight that any one country has ever been in the global equity index. And then if you now dig in within the US market, and this is a little tougher to do, but if you dig into the proportion of the US equity market made up by tech, and the reason it's difficult is they change the classification system a couple of years ago.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Absolutely. So it was just totally extraordinary. And from that perspective, the past didn't give you a particularly good guide as to how that crisis would unfold. And maybe that sort of reiterates my point a little bit that you can't build protection strategies which are really trying to put your finger on exactly what's going to happen. You have to be aware that you're forecasting ability as poor and you've really got to have a strategic response. And that's why we call the book Strategic Risk Management. It's really a set of strategies. It's a plan. And you can't make the plan up on the fly. The worst thing you could have been doing last year is making up your protection strategy during March of 2020. It was too late by that point. You had to make up your protection strategy in the months and years before then, and then you had to be implementing it during March 2020.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, so for us actually, I don't think 0809 really was backtest because we were actually trading most of these strategies at that time. So I think we actually have pretty good live experience. And Firstly, I should say March of 2020 was an extraordinary crisis. And all crises are extraordinary. But one of the things which was most extraordinary about March 2020 was that markets fell very quickly. We've seen that before. But then they reverted remarkably quickly. And really the most similar crisis in terms of market action that you can put your finger on since the Second World War was the October 87 crisis. So that very rapid fall you had followed by an almost equally rapid recovery. So that might say, well, if you fitted, if you've sort of tested your crisis protection on all these slower crises, then maybe you wouldn't do too well in this faster crisis. And that's actually not what we found. So we found that”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Up and they keep rising and gold the same thing. And if you can build a strategy which encapsulates and tries to capture that effect, then you can build something which is robust and is not depending on your ability to put your finger on what the next bad event might be.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Bond market, or you could have some sort of trading strategy, and certainly for me this time series momentum which we touched on in our first segment, this idea that you can build a trading strategy like the CTAs have done, which relies on just a little bit of persistence in returns and looks for them everywhere, that can be a very good way of building a defensive strategy. So in other words, If we describe a crisis, and I can't tell you whether it comes from a war, a credit crisis, an epidemic, something else, but typically in a crisis like that, you will tend to have equities going down, you will tend to have bonds going up, you'll tend to have gold going up. It's a bit harder to tell what might happen to energy prices. But those moves tend to persist for a bit. They tend to, you know, equities fall and then they keep falling and bonds might go.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Robust to any of those things coming along. And my own suggestion on this would be that it's too expensive to buy put options. Buying put options on the S&P 500, you can do every now and then, but you can't do it all the time. It just becomes too costly. And so you're going to have to have a strategy which relies a little bit more on either assets in your portfolio which you think are likely to do well in a stress period that could be gold. In my view, it's not terribly reliable. It could be gold. It could be US treasury bonds or other government bonds around the world. Of course, if the problem emerges from the bond market, it's not really going to help you. And people, I think, forget that there have definitely been problems from the bond markets. You just need to look back a little bit to the early 1990s or before then to see that actually there were plenty of problems that came from the”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Forecast, you'll probably make a mistake by protecting yourself against the wrong thing. Once you've got over that and said, well, actually, it probably can't forecast the next bad thing, then I think what becomes much more important is, okay, now you need a strategy that is going to be relatively insensitive to the nature of the bad thing. In other words, whether it's a tech bubble collapse or credit crisis or something entirely different, a war or a pandemic, or it could be any of these things, obviously. You need a strategy which is going to be”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“What the bad events will be. The only thing I can really feel confident about is that there will be more bad events in the future. It seems that they just keep coming, but they have different shapes and forms. And maybe as a side anecdote on that, we have an excellent risk manager at Mang Group. And at the end of 2019 and a sort of planning exercise, he was giving all the risks that could affect markets. And he had about 20 of these things. And one of them was epidemic. And I looked at this at the end of 2019 and I said epidemic. Well, I mean, I don't know much about epidemics, but I can't say it's impossible, but it doesn't seem very likely. So we did exactly nothing about the risk of epidemic. And if he got the word almost right, pandemic instead of epidemic. But, you know, even if you have it on your list of things, which my risk manager did, it's very hard to act on it. So I think humility in terms of ability to forecast these things is really important. If you think you could...”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“So I think the first thing that a portfolio manager should do is realize that you cannot forecast these events. And I speak, at least I used to speak at conferences a lot when we still had conferences and people would ask me, well, what's the Black Swan event that's going to happen this year? And I also thought that was the most ridiculous question. Because clearly all of these events are unforecastable and generally the ones that you forecast will happen don't end up being the thing that takes place. So I think the first thing is to show a lot of humility about our ability to forecast.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, absolutely. Absolutely. There's a very small, and what the CTAs try and do, the futures trend followers, is there's a very small effect of being able to pick up some persistence and returns, but you have to do it across hundreds of markets and you have to do it consistently over time. And you'll just manage to eke out just a little bit of alpha by doing that. The volatility is much easier.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Might be able to make a statement about 20 year expected returns. I suspect both you and I will be at least 20 years older in that 20 year point and whether anybody will really hold us to it or whether it's useful observation.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Bond markets, commodity markets, just about zero. It has no last month's returns have close to zero predictive ability of telling you what next month's returns are going to be. If you now do that on risk and you calculate the volatility of markets last month or the month before or the month before that, SE has very high predictive ability. So people like me would call this the serial correlation. So the serial correlation of returns, in other words, from last month or two months ago or three months ago to this month's returns, is close to zero. You might as well call it zero, so close to zero. If you do the same thing in volatility and you can do this across equity markets in the US, but also across other parts of the world, bond markets, commodity markets, currency markets, that cereal correlation is around 40%. So that's telling you that last month's volatility is actually telling you quite a lot about this month's volatility. And so whilst you...”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I think what's wrong with that is that you've tried to compare forecasting very long run returns and then said, but I need to forecast short-term risk. And so let me sort of decompose that a little bit more. Many times people, when they forecast returns, and we're all guilty of this, we end up being pretty influenced by what happened in the last month or two. And so we say, you know, many people, for example, are pretty positive about equity market returns globally and maybe especially in the US. And one of the reasons for that really is that we've had good returns really since March, since April last year, and people are extrapolating. They're just stretching forward. But if you look at the data, and if you look at the data over long periods of time, you find the correlation between past returns and next month's returns is about zero. In almost all markets around the world, equity markets.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“The wrist side as equal partners, and you'll build better and more stable portfolios, which will actually do better over the long run because you won't end up making bad decisions during the stress periods.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Partners, and the reason for that is firstly huge amounts of damage tend to be done when there is bad risk management in stress periods. If people aren't prepared for those stress periods, they make bad decisions in those stress periods, lose a lot of money, often crystallize losses, that sort of thing. So firstly, if you don't have a proper risk approach to building portfolios, when you enter choppier periods in markets, then you're likely to make that decisions. The second, which I mentioned earlier on, is kind of surprisingly, it's actually much easier to forecast risk than it is to forecast returns. And you can use that to give yourself more stable portfolios. And so we were really trying to say that you can blend the alpha side of portfolio management with”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, you're right. It's absolutely in the weeds type of book. What got us going on this was really a sense that for many portfolio marriages, risk management is something which comes afterwards. They build their portfolio and then the risk team do something later on and tell them whether it's okay or not. And we thought that that's actually a very bad way to run portfolios and a much better way is to have the alpha side of building portfolios and the risk side to be equal partners. And that's something that we've really tried to build as a culture at man group that risk is part of the investment team. As I sometimes put it, if risk is the police, if they're the people that come kind of knocking on your door telling you you've done something wrong, that's not really a good way of running portfolios. What you really want is as you're building the portfolios to risk and the alphabets to come as equal.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“It's quite a complicated concept, a long VIX ETF is complicated, a short VIX ETF is very complicated. And I think from that perspective, people probably had some surprising results that a lot of people lost a lot of money. Some of the issuers of these short VIC CTFs made a lot of money at the same time. It felt like a pretty bad state of affairs to me.”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source
“I think, firstly, I think your description there, Barry, is pretty fair. When we did the work, Dvesh Amshar and I did the work back in 2003, 2004, the boss that asked me to do the various other things that we talked about said, you know, you should look at creating an ETF on this thing. And so we did, and we got together with one of the very big ETF providers. And they said, well, look, maybe you could do some modeling of how this thing will behave. And we did that, and we concluded this is just not a good product. It's got some nasty characteristics. And so we decided, along with that large firm, that we should not sell ETFs on the VIX. Now, other people took a different view, and so your analogy of kind of the kids getting the keys to the car more or less accurate, actually. I think the...”
2021-08-06 · Masters in Business · Sandy Rattray on Strategic Risk Management · IDENTIFIED FROM THE TRANSCRIPT · source