Ten years later: What we learned from the Quant Liquidity Crunch


The Quant Liquidity Crunch changed the world of quantitative investing. That seismic event, combined with the subsequent financial crisis, has transformed how investors view risk and how they seek to find excess returns for their portfolios.

In a new paper, Peter J. Zangari, Global Head of Research and Product Development looks at the lessons learned over the past decade and what they mean for institutional investors. Among his key findings:
  • As a result of these crises, best-in-class risk management is now thoroughly integrated into the overall investment process. Some asset managers portray their risk management capabilities as a competitive edge.
  • Institutional investors continue to seek alternative and diversified sources of risk and return, via low-cost exposure to common factors, private assets such as private equity and real estate, and investment ideas stemming from new and emerging datasets.
  • The liquidity crunch also contributed to greater awareness of other types of risk beyond volatility, such as crowded trades, contagion across factors, and liquidity issues.
  • As systematic factor exposures become more easily accessible through indexed strategies, quant managers have also turned to machine-learning techniques (“Big Data”) to find new, proprietary sources of alpha.

Institutional investors face three key challenges on how to:

  1. Identify opportunities to improve investment performance and to capture those opportunities through the investment process;
  2. Explain to their clients how the results of their investment program are aligned with their fiduciary promise; and
  3. Continue to drive down costs and be more operationally efficient.

MSCI has tools and resources to help investors navigate these decisions.

 

 

 

MSCI Blog

Fast-moving Markets: Revisiting the August 2007 Quant Crunch in Real Time.

Full paper

Ten years later
What we learned from the quant liquidity crunch.
Peter J. Zangari
Global Head of Research and Product Development.

Research at MSCI

Access MSCI's research covering Global Investing, Factor Investing, Integrated Risk Management, Real Estate and ESG Research.