‘Systematic investing has a place in all portfolios’, Alpima’s CEO says
Pierre Mendelsohn has been involved in quantitative strategies all along his career, having held various positions over two decades on the trading floors of investment banks such as Morgan Stanley and Merrill Lynch in New York, London and Hong Kong where he specialised in quantitative strategies, derivatives and structured products.
In October 2014, the former Morgan Stanley managing director founded Alpima in London. Alpima’s platform focuses on highly liquid equity and multi-assets strategies with ultra-low trade frequency.
It contains ready-made long-only and long/short strategies that clients can customise. Clients can also build new strategies from scratch together with the firm.
Alpima was granted FCA authorisation in November 2015. Its staff currently tallies 11 employees, including former Pimco senior vice-president Ilan Heimann who is head of Sales and Partnerships.
Mendelsohn depicts Alpima as a new generation digital advisory platform focused on systematic investing and asset allocation.
“A number of factors made me believe there was an opportunity in the space. The financial world is being re-shaped by technology and strong macro-economic forces. Technology is an important component as the world around us is going digital and orders can get executed electronically faster than ever.
“Client expectations are shifting fast. The real opportunity lies in helping clients build personalised portfolios quickly and easily – i.e. personalised service at scale,” he highlights.
“We are not a B2C business but a B2B provider that aims to help asset managers and institutional investors create high-quality rule-based portfolios and strategies. Replicating robo-advisory models is not our aim – the aim is to give our clients something they don’t already have,” Mendelsohn adds.
Alpima’s platform is already used by more than 100 users and interest has been high from wealth managers. In addition, asset managers use it to build and test strategies before they go to market, manage them and generate a client experience.
“Without our platform and the tools we have developed, it would take weeks, sometimes months to create and launch such strategies,” Alpima’s CEO pinpoints.
According to him, the future of systematic investing looks bright as he believes “systematic investing has a place in all portfolios whether it is for reducing risk, improving risk-adjusted returns or targeting a certain amount of volatility.”
“The pitfall to avoid is running smart beta for smart beta’s sake. Anything that calls itself smart should be seen with caution. Alpima aims to combine the best of man and machine. On our platform, humans can shape strategies – in accordance to client constraints or market views for example.”
However Mendelsohn points out that as the smart beta trend is growing in the industry, rule-based investment strategies becoming the norm would naturally lose their edge.
“It is called the Goodhart principle, or Lucas Critique. Any rule-based strategy will start to underperform as its gets noticed, copied and ultimately becomes too big for its own sake. Nevertheless, systematic investing can bring many benefits – from helping to reduce the risk of liquid equity portfolios to improving the risk-adjusted returns of multi-asset portfolios.
“One can argue that opportunities might be missed if one is too systematic, but systematic investing can help bring some rigour to the investment process and address classic human biases such as the tendency to follow crowds or over-reliance on recent history,” he says.
How does Alpima tackle the big data issue? Mendelsohn answers that in derivatives and quantitative finance, the topic is not new. But he notes that both access to data and the way it is processed have changed.
“Tools which allow you to cut through the noise are becoming more and more valuable. We put much emphasis on the relevance of data for our clients. We do not claim to have invented risk optimisation, but we’ve certainly made it easier to implement it through our platform,” he concludes.