Austrian asset manager Spängler IQAM Invest believes the application of a scientific approach is the secret to its success and growth in the country's institutional market for balanced funds and bond portfolios.
Austrian asset manager Spängler IQAM Invest believes the application of a scientific approach is the secret to its success and growth in the country’s institutional market for balanced funds and bond portfolios.
The financial crisis hit most portfolios very hard. Even more so, the theories behind portfolio construction were shaken by the massive volatility in virtually all asset markets. Risk metrics such as the Value at Risk or formulas such as the Copula, which is used to value complex credit derivatives, attracted a lot of criticism from regulators for leading portfolios astray.
Yet the lesson from the crisis must not be to dismiss the scientific approach, warns Josef Zechner. "I do not see an alternative to science."
Zechner is a man of both worlds of finance. He is the professor for finance and investments at the Vienna University of Economics and Business (the WU Wien), and has worked and taught in the US and Canada for years.
He is also a practitioner, as one of the founding partners of Spängler IQAM Invest, a Vienna-based asset management company with more than €5.15bn in assets under management as of the end of March.
The face of experience
"The scientific approach continues its triumph into professional practice," says Zechner, who praises financial innovations that have created ETFs and gave investors proper risk metrics.
"We have seen a revolution of indexing and exchange-traded funds that you can trace back to research from Bill Sharpe and Harry Markowitz. It took years for the products to develop after the ideas were drilled into the minds of MBA students around the world."
Thomas Steinberger (pictured left to right Engelbert Dockner, Josef Zechner, Thomas Dangl and Steinberger), chief investment officer and managing director at Spängler IQAM Invest, highlights the same issue. "Quantitative tools are in even greater demand from clients today, especially in risk management."
The firm, which manages mainly balanced portfolios, uses state-of-the-art risk overlays in portfolio construction. In doing so, the asset managers set risk limits for asset classes, such as stocks, and monitor them constantly. "No bank has switched off its Value at Risk models," says Steinberger. "They have merely improved them."
Steinberger has worked as researcher and economist at the Austrian central bank. In the case of Spängler IQAM Invest, risk management means to dynamically estimate covariances, "a measure of the co-movement of different securities or asset classes", and to embed its own return forecasts in the risk model rather than just using the observed volatility.
IQAM (the Institute for Quantitative Asset Management) was founded by four academics to link research and asset management. The launch in 2007 came before the biggest financial crisis in recent history struck the world.