While some players are abandoning quant investing, others are expanding their positions in this domain. Scale is becoming increasingly important in quant investing, says Weili Zhou, Deputy CIO and Head of Quant Investing at Robeco, home to the largest quant team in the Netherlands.
Zhou’s team consists of over fifty researchers and (client) portfolio managers, and for special projects, she can temporarily expand it to sixty or seventy. In Europe, Robeco is one of the market leaders, managing approximately 90 billion euros in assets based on quantitative models.
Weili Zhou has strong growth ambitions, as she makes clear in a conversation with Investment Officer, mentioning a figure of 150 billion euros. “But in addition to that, and perhaps even more importantly, we aim to innovate wherever possible.” This innovation is being sought in fixed income, a relatively underdeveloped area for quant investing, and—in terms of methodology—in new technology. “A few years ago, we launched our next-generation programme, and we are only expanding it.”
Growth in quant investing is not a given, as became evident a few weeks ago. It was announced that APG has ceased offering “quantitative products” to the pension funds for which it performs (fiduciary) asset management. As of 1 February, its 25-member quant team has been disbanded.
At the same time, it became clear that there is still significant demand for expertise in this field. Northern Trust Asset Management took advantage of the situation and expanded its quant team in Amsterdam with thirteen specialists from the former APG team. Northern Trust manages 43 billion US dollars globally in quantitative strategies. The Amsterdam team is led by Guido Baltussen, who worked at Robeco until the end of 2023.
“An excellent research assistant”
Robeco, too, remains keenly interested in new talent, said Zhou. “In our next-generation programme, we are heavily investing in machine learning, natural language processing (NLP), and artificial intelligence. All this new technology makes an enormous contribution, particularly in the early stages of development. Idea generation, coding—technology is an excellent research assistant and takes care of the first 70 to 80 percent of an innovation. However, if you do not have specialists to test and refine the results, you are left empty-handed.”
With this in mind, Robeco has had its own talent development programme for years, and the asset manager is satisfied with it, Zhou explained. “However, there is always a need for people with unique knowledge and experience in this field—people who can bring us new perspectives.” Such individuals are rare but essentially indispensable. Zhou added: “As teams grow, they tend to become more inward-looking and develop habits in the sense of ‘this is how we do things here’. However, quant investing is all about constantly seeking and testing new perspectives.”
Deep pockets
Larger teams are unavoidable when aiming for growth. “That is a key focus area for me,” said Zhou. “But that does not change the fact that we certainly want to grow. Scale is increasingly becoming a necessity in this domain.” Firstly, because investments in platforms and infrastructure require “deep pockets,” she explained, and secondly, because scale provides a broad client base.
“That is perhaps the most important reason. Client relationships may not be easily quantifiable, but due to our scale, we have so many clients and such a diverse range of clients that we are constantly being fed with insights. What do these clients need? What are asset managers doing? What innovations are they considering? Which clients are willing to contribute to innovation? With a large platform, you receive far more input in this regard than with a small platform.”
Silicon Valley style
Innovation also leads to a more diverse range of offerings. There was a time when quant investing was synonymous with factor investing, but Robeco does not want to be too dependent on those strategies. “That is a lesson we have learned with regard to equity strategies,” said Zhou. “Factors have amply proven their value and will always exist. But when many parties adopt the same approach… That is why we also look for other sources of alpha.”
Recently, this approach led to the launch of four actively managed ETFs, as previously reported by Investment Officer. These ETFs are based on a selection of quantitative factors such as valuation, cash flow, profitability, and price momentum, as well as on NLP to identify emerging themes.
The foundation of these new products lies in the next-generation programme, which is linked to Robeco’s “incubator lab”. “It is somewhat of a Silicon Valley-style approach: a developed idea is given the opportunity to prove itself in an incubator fund—live testing—before being evaluated. It either makes it to the market or is discontinued. The latter is part of the process too—kill your darlings. Painful, but it is an inherent part of innovation and growth.”