- Research focused on laying the groundwork for customized, outcome-based investing
Investors worldwide are caught between a desire to achieve greater investment returns and an aversion to taking risk. To help individuals overcome these traditional investment challenges, Natixis Global Asset Management has announced a commitment to fund a three-year, $1 million research project at the Massachusetts Institute of Technology focused on investor behavior and personal benchmarks to be led by industry thought leader Andrew W. Lo, Ph.D., Charles E. and Susan T. Harris Professor at the MIT Sloan School of Management and director of the Laboratory for Financial Engineering (LFE) where the research will be conducted.
In addition, Natixis will provide Lo and LFE researchers with access to data from its Durable Portfolio Construction Research Center’s global surveys of individual investors, financial advisors, and institutional investors, now in their fifth year and containing responses to more than 500 survey questions by more than 30,000 participants.
“The research we’re funding at MIT will lay the foundation necessary to revolutionize traditional investment strategies designed to help investors build better portfolios and increase their chances of long-term success,” said John Hailer, chief executive officer of Natixis Global Asset Management in the Americas and Asia. “Our firm has been on the forefront of innovative strategies for many years, advocating for a durable portfolio construction model with a recently added focus on helping investors develop a personal, outcome-based approach to achieve success. It’s time to introduce a new paradigm for investing.”
With almost $900 billion in assets under management, Natixis is one of the world’s largest investment companies and was named the #1 fund family for 2013 performance in the annual Barron’s/Lipper Fund Family Ranking.
This new research program will begin by studying the industry practice of using an index as a benchmark and developing a more modern approach to benchmarking based on an individual’s unique circumstances as well as current market dynamics. As part of this effort, LFE researchers will be developing algorithms to mimic irrational but common investor behavior (e.g. buying high, selling low, and moving to cash for extended periods of time) in an attempt to quantify the systematic mistakes made by investors. This will lead to the third phase of the research involving the creation of new customizable benchmarks and indexes that adapt to changing market conditions and behavioral challenges.
“The Holy Grail of developing automated, customized processes for making better investment decisions is not unique to our times or the financial industry,” said Lo. “But what is unique is the confluence of breakthroughs in financial technology, computer technology and institutional infrastructure that, for the first time in the history of modern civilization, makes automated personalized investment management a practical possibility.”
MIT Sloan Prof. Lo is the Director of the MIT Laboratory for Financial Engineering, a partnership between academia and industry created to drive advances in capital markets, risk management, and financial technology research. He is also a Principal Investigator at the MIT Computer Science and Artificial Intelligence Laboratory and an affiliated faculty member of the MIT Department of Electrical Engineering and Computer Science. “Many companies and experts have been talking about the need for change for years now,” said Lo. “I’m grateful to Natixis Global Asset Management for taking on this challenge by investing in research designed to benefit investors globally.”
Outside of academia, he is the founder, Chairman and Chief Investment Strategist of AlphaSimplex, a Cambridge-based investment advisor focused on the dynamic relationship between risk and return in the financial markets. The firm manages more than $4 billion in assets for institutional and mutual fund investors.
The $1 million grant will be made to MIT as a part of the Natixis Global Asset Management Durable Portfolio Construction Research Center’s ongoing commitment to providing investors, financial advisors and policymakers with valuable insights to assist all investors over the long term.