Leader Speak

The human side of quant investing

Vinva founder Morry Waked reflects on three decades of investing, the rise of AI and why humility, discipline and rigorous research remain the foundations of long-term investment success.

You’ve spent more than three decades in investment management, from your time at Rothschild and BGI through to founding Vinva. Looking back, what aspects of investing have changed the most, and what core principles have remained the same?

What has changed most is the sheer scale and speed of what is now possible. When I started in quantitative research, we worked with a handful of ideas, relatively limited datasets, and models that ran overnight in batches. Today we draw on an enormous breadth of data — much of it unstructured — process it in close to real time, and have the computing power and modelling techniques to take advantage of opportunities that we simply could not do decades ago. Market microstructure structure has changed alongside this as well, with electronic trading, HFT’s along with faster implementation has made the opportunity set truly global. The increase in passive and ETFs has also raised the bar for genuine active managers to demonstrate value.

What has not changed are the principles that govern our active investment approach. Our investment philosophy has remained the same for 30 years. What has changed, and evolved, is how we model and exploit opportunities and the techniques we use.

Markets are still influenced by people, so behaviour and emotion still drive a lot of short-term price movements, and the recurring mispricing is the opportunity we seek to exploit. Discipline, patience and a rigorous proprietary research process matters as much as ever.

To be a successful active manager requires a good dose of modesty and humility – it is important to acknowledge that there is more that we do not know than we do know – markets are noisy and volatile and it is imperative not to overestimate our ability to forecast outcomes.

Quantitative investing is often seen as being driven entirely by models and data. In your experience, what role does human judgement still play in the investment process?

This is one of the biggest misconceptions about our style of investing — that it is machines operating with little influence from people. The reality is the opposite. Models do not build themselves. It is our people who form the hypotheses, decide which data is genuinely informative and which is noise, design the signals, determine how they are combined, and set the risk controls that govern the portfolio. Investment insight and judgement sits upstream of everything we do.

Where the discipline of a systematic process really helps is in removing emotion and knee-jerk reactions from day-to-day investment decisions. We believe that, on average, emotion detracts from investment performance and that discipline is only as good as the human insight behind it. We are, at our core, an intellectual capital firm — our biggest asset is our people. Successful investing requires looking beyond the numbers: it depends on the quality of the team, the strength of the research and the culture that surrounds it.

AI has become one of the biggest themes in financial markets and investment management. How do you see AI changing quantitative investing, and where do you think investors may be overestimating or underestimating its impact?

We have been using machine learning and language-processing techniques since 2006, well before the current wave of attention, so AI is not new to us. Financial markets are extremely noisy and a great deal of the relevant data is unstructured, and that is exactly where these tools are powerful — extracting signals from text and other sources, and helping us research and implement faster. Used the right way, AI enhances and supplements certain parts of the investment process.

Where investors overestimate AI is in treating it as a black box that prints alpha on its own. AI does not remove the need for talented people and investment insight, in fact, quite the opposite. Because so many market participants now have access to similar tools and similar data, any naive edge can get competed away quickly. There is also a real risk of “alpha concentration” and mistaking noisy patterns for genuine information.

What tends to be underestimated is the unglamorous part — data quality, knowing which parts of the data to use and how to apply it. The edge is not the models themselves; it is the discipline, the infrastructure and the investment professionals around it, built and refined over many years. That is very hard to replicate.

Vinva has built a strong track record by identifying repeatable sources of alpha across different markets and cycles. In today’s highly competitive environment, what do you believe still creates a sustainable investment edge?

No single signal is a sustainable edge — anything obvious may be arbitraged away. A durable edge comes from the combination: outstanding people, a strong culture, a disciplined process and the research infrastructure to keep innovating. We take a large number of small, deliberate active positions rather than a few concentrated bets, which gives us diversified and repeatable sources of alpha across more than 45 markets and through the full cycle.

Two things reinforce that edge in our case. The first is the stability and experience of our team — many of us have worked together for over two decades, going back to our time at BGI. The second is alignment: Vinva is completely independent and majority employee-owned, which fosters a long-term, owner’s mindset and keeps our interests squarely with our clients’. Markets are dynamic, our research never stops and, ultimately, our culture is the moat.

Having navigated everything from the dot-com crash to the GFC and COVID, what do you think investors most often get wrong during periods of market volatility?

Several structural shifts will shape the next phase of investing.

Some of the common mistakes are over confidence and confusing noise for information. The majority of the price movement and volatility you see day to day is driven by noise rather than genuine information, yet investors react to it — selling near the bottom, chasing near the top — and let emotion override their processes at precisely the moment discipline matters most.

Markets can be very humbling - the key during these periods is to stay humble, control active risk, avoid inadvertent exposures and stick to your investment philosophy - this is what gets you through the difficult stretches.

After leading investment teams at one of the world’s largest asset managers, what motivated you to establish Vinva, and what has been the most rewarding part of building the firm?

By the time I left Barclays Global Investors (BGI) in 2010 I was responsible for a very large global active equities business. The motivation to start Vinva was a personal decision, and about having a firm with a focused investment approach and a single investment philosophy. Also, building a completely independent, employee-owned firm with the right culture and the incentives to focus entirely on client outcomes over the long term, without the constraints that come with a very large global institution. As a team, we were convinced that genuine ownership and alignment would attract and retain the best people and lead to better investment outcomes for clients.

The most rewarding part has been the people. Keeping an exceptional team together — many since our BGI days — and watching the next generation grow into the firm has been enormously satisfying. Delivering investment outcomes for clients through many cycles, growing from a start-up into a global investment firm and staying true to our philosophy, is something the whole team can be proud of.

For young investment professionals entering the industry today, what skills, habits or mindset do you think will matter most over the next decade?

Strong technical, data and coding skills have become increasingly important — they are necessary foundations but not sufficient on their own. What will set people apart is their common sense and character: the curiosity to keep asking why, the relentless pursuit to keep improving and the scepticism to distinguish what is true information and what is noise. While it is necessary to embrace new data and technology, you can never outsource real innovative thinking and that is why talent matters most.

In terms of habits, I point to intellectual honesty, discipline and patience, as well as a commitment to never stop learning and getting better every day — markets are dynamic and there is always something going on. And the mindset that matters most is humility: knowing what you know and importantly knowing what you don’t know. Focus on process rather than chasing outcomes, collaborate well, and understand that your reputation and integrity compound over a long career just as much as returns do.

What keeps you busy when you’re not thinking about markets and investing?

More than anything, I love spending time with my family. Outside of that, I enjoy watching and following sport. I admit that I do think about work a fair bit and the weekends are actually a good time for it: away from the daily hustle, with a bit of space to think, is often when the newer and more innovative ideas come to me.

Are there any books, podcasts or other sources of insight you’re particularly enjoying at the moment?

I tend to gravitate towards things that sharpen how I think rather than tell me what to think. For podcasts, I enjoy a mix of investment conversations and longer-form interviews outside of finance. But honestly, one of the most valuable sources of insight is still the daily debate within our team at Vinva — being challenged by sharp, intellectually curious people is hard to beat.