Natixis Global Asset Management is funding a three-year, USD1 million research project at the Massachusetts Institute of Technology (MIT) focused on investor behaviour and personal benchmarks.
The research will be led by Andrew W Lo, Charles E and Susan T Harris, professor at the MIT Sloan School of Management and director of the Laboratory for Financial Engineering (LFE), where the research will be conducted.
In addition, Natixis will provide Lo and LFE researchers with access to data from its global Investor Insights surveys of individuals, financial advisors, and institutions, now in the fifth year and containing responses to more than 500 survey questions by more than 30,000 participants.
“The research we’re funding at MIT will lay the foundation necessary to revolutionize traditional investment strategies designed to help investors build better portfolios and increase their chances of long-term success,” says John Hailer, chief executive officer of Natixis Global Asset Management in the Americas and Asia. “Our firm has been on the forefront of innovative strategies for many years, advocating for a durable portfolio construction model with a recently added focus on helping investors develop a personal, outcome-based approach to achieve success. It’s time to introduce a new paradigm for investing.”
The new research programme will begin by studying the industry practice of using an index as a benchmark and developing a more modern approach to benchmarking based on an individual’s unique circumstances as well as current market dynamics. As part of this effort, LFE researchers will be developing algorithms to mimic irrational but common investor behaviour (e.g. buying high, selling low, and moving to cash for extended periods of time) in an attempt to quantify the systematic mistakes made by investors. This will lead to the third phase of the research involving the creation of new customisable benchmarks and indexes that adapt to changing market conditions and behavioural challenges.
“The Holy Grail of developing automated, customised processes for making better investment decisions is not unique to our times or the financial industry,” says Lo. “But what is unique is the confluence of breakthroughs in financial technology, computer technology and institutional infrastructure that, for the first time in the history of modern civilisation, makes automated personalised investment management a practical possibility.”
