SAY WHAT YOU DO, AND DO WHAT YOU SAY!

As a quant who studied AI in the early 70’s and morphed into a derivatives pioneer/risk manager/ risk advisor, this article re quant funds in China attracted my attention. Several important points that we all know but sometimes need to be reminded:

1. “Say what you do and do what you say” is an essential component of the responsibility an asset manager owes to their investors that is not always respected

2. History does not always repeat itself nor should we assume it will

3. It is important to stress test how sensitive your conclusions are to your assumptions in addition to sensitivity to market moves

4. Liquidity matters and changes over time. Beware of “iceberg risk” where your positions might have copycats that impact your liquidity