Trends Watch: December 15, 2016

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies Snyderman.  

This week, Elana talks to Alamgir Alvi, Founder of CapGains Investments (CGI).

What is your outlook for the alternative investments industry?  

We have a very positive view of the industry, especially as it continues to evolve into accepting new strategies like ours. Active management (stock selection) and passive strategies (beta exposure) are best used together. We strongly believe that the future path is through cognitive learning, whereby an information advantage can be created in asset pricing and applied on a going forward basis.  This is what our investment methodology does at CGI. It allows us to efficiently pursue robust alpha with lower volatility and be beta, dollar, and factor neutral.  This is the holy grail of hedge fund investing, and what alternative assets at their best should bring to investors.  There will always be a place for stock pickers and excellent analysts to add value, but the ability of the industry to encourage and be open to new ideas is what determines its strength.  That ability has never been stronger.

What is the chief advantage of quantitative investing?  What are the challenges?  

The simple goal of quantitative investing is to emphasize rationality in the investment process as much as possible.  There are many approaches to doing that, which others can better discuss.  As for our approach, we have built a system where cognitive learning or self-learning is used to create an adaptive and responsive mechanism.  We also utilize inputs of non-financial data.  In fact anything that we believe can inform our system’s ability to self-correct and that diminishes forecasting errors is of value to us.  So I would say our chief advantage is this ability to capture information asymmetry in different asset classes and also capture less identifiable drivers of returns.  The chief challenge is to make sure that at all times we are maximizing that process.  Consequently, we constantly seek to improve our system.

What is your outlook on the economy?  

We do not really focus on the economy except to the degree that non-financial inputs of our system may be affected by economic forces.  But we let the system tell us; we do not try to analyze or predict anything ourselves.  One thought I do have is that if the post-election trend of higher interest rates continues it could be marginally beneficial to our strategy as it introduces another bit of informational variability that can be utilized.

What keeps you up at night?  

What a good question.  I would like to give a full answer but you would need to afford me several pages!  My summary answer is the goal of making our cognitive learning process as good as it can be…given that there are always ways to improve, it is in many ways an endless challenge.  We are in the forefront of the future of investing.  The excitement of contemplating that future can definitely keep me awake.