Julia Bonafede, co-founder of Rosetta Analytics, critiques conventional institutional investment frameworks during a discussion on machine learning in portfolio management.
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“If you think about how rudimentary the other processes are that literally trillions of assets are invested in, at this point in this seat, I'm not quite sure why everybody feels so comfortable with their current frameworks. Because again, you could index and pay a lot less.”
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More from Julia Bonafede
Insight
Bonafede: Only reinforcement learning can dynamically moderate portfolio risk
“As it learns to maximize the reward, the model, I don't mean to give it human characteristics, but it will moderate risk because it can see that taking full advantage of the underlying patterns may not lead to the best reward, and there's No other optimization…”
Bonafede: Most institutions cannot simply index their portfolios
“Jack Bogle had a view of Really, you should index everything, and over the long term, you'll get there at much lower fees, and everything will compound, but the reality is, is that most institutions can't invest that way for just by their very structure, or by…”
Bonafede: Peer group benchmarking is consultants' biggest disservice
“Probably the biggest disservice that consultants have ever done is putting everybody in peer groups so that they compete against each other, even though that their liabilities are completely different and their circumstances are very different.”
Bonafede: The active fixed income business model is in trouble
“So how do fixed income managers actually charge active fees on top of duration risk and low yields, where investors are going to be looking at most of their portfolios, and you're earning close to zero, and on a real basis, you're earning negative. So that who…”
Bonafede: Asset management must undergo a major structural correction
“In my view, portfolio, the asset management industry is really has to go through a big correction before any of this will shake out, but you've seen unprecedented mergers and acquisitions.”
Bonafede: Traditional factor models leave substantial returns on the table
“The traditional way of measuring relationships really leaves a lot of information on the table. You're either describing a small portion of that return, or you're just building portfolios that don't have, aren't dynamic in terms of how those relationships chan…”
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