In a New York Times profile published last Thursday, former Yale Investments Office analyst Zhang Lei GRD ’02 SOM ’02 chronicled his journey from interning under Swensen to managing one of the world’s most successful firms, Hillhouse Capital Group. The firm, which Zhang founded in 2005, now controls over $18 billion... MIT Finance professor Andrew Lo ’80 said that leveraging the skills and investment knowledge present in the alumni community is not a new phenomenon. “I think it is an advantage because alumni are quite loyal to the university so they have additional motivation for participating in supporting the endowment activity,” Lo said. “We have seen this not only at Yale, but at other universities as well, where if you look at the investment committee of endowments, they are populated with alumni who are talented in the investment industry and are willing to give their services and expertise.”
“Smart beta” funds are trying to outsmart your active manager. But individual investors who are drawn to them should also make sure they don’t get outsmarted themselves... “Smart beta is often accompanied by dumb sigma,” [Professor Andrew Lo] says, meaning additional risk that is unnecessary and which investors may not be rewarded for. “When you have multiple sources of beta, you also have multiple sources of risk. Illiquidity risk, for example, can often be a companion to smart beta.”
Freezing rain is falling on the sidewalks at Vanguard Group’s sprawling suburban campus outside Philadelphia, but it doesn’t slow down company founder John C. “Jack” Bogle as he hustles from his office to the cafeteria for lunch. A slew of money managers and academics—Robert Arnott of Research Affiliates, for example, and Andrew Lo at AlphaSimplexGroup—say they’re building on what Bogle created.
For the first time since 2002, Yale is no longer the second wealthiest institution of higher education in the nation. While some experts interviewed said Yale’s drop in rankings is not a cause for concern, others argued that large, public institutions may increasingly challenge private universities when it comes to endowment size. “Yale is still a dominant force in the endowment world,” Massachusetts Institute of Technology finance professor Andrew Lo ’80 said. “Texas is a very big state and there is lots of opportunity to grow their asset base, while Yale is in the midst of using funds for new buildings — it is all part and parcel of that dynamic.”
For years, Brad Margus has juggled two goals as chief executive: Make money, and find cures for his children. He just co-founded a startup, Exigence Neurosciences Inc., in part to seek treatments for his two sons who have ataxia-telangiectasia or A-T, a rare progressive and eventually fatal neurological disease... “The amount of money needed to develop a single drug is so much more than what pure altruism can fund,” says Andrew Lo.
When trying to understand how the market is working, we should think not only of bulls and bears, but also of dodos. Our aversion to risk comes from the deep biological imperatives that have allowed humans to avoid extinction. Any theory of markets must take account of this.
That, at least, is the radical prognosis of Andrew Lo, of the MIT Sloan school of business, who has for years worked on an ambitious project to apply biology to finance. His latest paper, published with several colleagues, provides mathematical equations to show how risk-averse behaviour is necessary for survival. That means that investors in markets will take risk-averse actions rather than the purely rational decisions that economists have classically assumed.
The financial system has gotten much more complex, but many financial regulations are from the 1930's and 40's, notes Andrew Lo, professor at the MIT Sloan School of Management. Lo helped come up with the idea for the U.S. Office of Financial Regulation, which was created by the 2010 Dodd Frank Act. Nonetheless, much of Dodd Frank is way too long and difficult for anyone to understand, Lo contends. 'That wasn't so much an update as it was a piling on of new regulations,' Lo says of Dodd Frank.
The MIT Sloan School of Management's Institute for Work and Employment Research, The MIT Political Science Department and Boston Review convened a diverse group of faculty and community leaders to discuss the lessons that can be drawn from the astonishing events involving Market Basket. Excerpts Professor Andrew Lo's comments from the panel on Finance, Marketing and Operations are included in this article.