Diversification is key
AHL trades 200 different contracts in over 30 countries
The quant approach to investing suffered certain criticism when in August 2007, a number of well-established funds suffered dramatic losses. Since the beginning of the global financial crisis, liquidity risk has become a major concern, causing disruptions that have spread from stocks to other credit derivatives and asset classes. Post-crisis however, there is much greater awareness of liquidity risk and the need to avoid less liquid stock, which in the past drove so much profitability.
"In terms of macro-trading, in the last year we've seen a lot of government intervention, which makes clear that quantitative investments have become considerably tougher in part due to the challenges involved in trying to forecast political interventions. We've also seen heightened correlation between countries, a demand for greater transparency, and a necessity to trade in more liquid markets," says Tim Wong, CEO of AHL and a member of the Man Executive Committee. He joined the company in 1991 as a research analyst, and later assumed overall responsibility for the day-to-day running of the research and investment management operations.
Formed in 1987, AHL is part of the Man Group and a world-leading quantitative investment manager, specialising in systematic directional and non-directional trading strategies. Based in London, with offices in Oxford and Hong Kong, the company manages US$21.9 billion (as at September 30, 2010) and trades in around 200 different contracts around the clock in over 30 countries. Globally diversified, trading is not limited to equity and covers markets such as futures, forwards, some OTC markets, stock indexes, bonds, commodities, and currencies. Despite having a well-established business and client base in Asia, the opening of a trading desk in Hong Kong in March 2009 has allowed the company to establish even better communication with local partners and brokers and to understand new regulations and to exploit new opportunities as they happen in the region.
Continuously striving to extend the range, precision and versatility of its trading models, the company relies not only on historical data but also its ability to interpret that data in a way that takes into account the infrastructure of today's market and the necessity for diversification.
"Increasing diversification is key for any quant player in today's environment and we have to look to the emerging markets, Asia Pacific included, and invest in markets such as RMB and infrastructure," explains Mr. Wong. "The retail space is much more established in Asia and the composition of the institutional investor space is quite different from that of the US or Europe. In Asia we have seen fewer major institutional players such as banks and pension funds, but the take up generally is not far behind," he observes.
Looking at China, Mr. Wong sees an extremely liquid and efficient futures market, dominated by retail investors. Authorities, he says, are still very cautious about onshore institutional players entering the arena. "Certainly when we talk to the regulators, it's not obvious that we can access the market. However, things can change very quickly and we have to remain on top of things. In China, everything works on such a big scale that you need to be able to access many different channels. Even if one channel is a success you may still see many more channels opening up because of the large trade surplus and foreign reserves. Obviously, that requires a lot more work, and market timing is very important," he adds.
AHL's commitment to research and development is clear. Supported by the wider Man organisation for sales and marketing and its relationship with major banks, more than half of the 77 people employed by the company are involved in the process. Results are based on a statistical model that forecasts price trends through data that in developed markets typically goes back 20-30 years.
Mr. Wong, an Oxford graduate himself, is proud of AHL's research culture and the collaborative ties with Oxford University which he has helped to develop. The Man Research Laboratory houses nine permanent AHL research staff in the same building as the Oxford-Man Institute of Quantitative Finance which opened its doors three years ago. Man also sponsored the first Oxford-China Business Forum, which took place in Beijing last month.
"Our relationship with Oxford represents a successful symbiosis between the commercial world and academia and affords AHL day-to-day contact with research leaders of disciplines relevant to the company and access to the best talent. On the other side, academics enjoy working with practitioners because it allows them to find out the latest challenges in the market first hand and to see how their theories are being applied," he concludes.
AHL has 77 people in research and altogether 120 people in research and trading