Kimberly Gallant, the Global Head of QIS Structuring at CIBC, has spent nearly two decades working across quantitative investment strategies, derivatives and structuring. Our conversation is a deep dive into the evolution of QIS and the economic rationale behind these increasingly important systematic investment strategies. We begin by exploring the origins of QIS and how ideas from academia, pension funds, commodity markets and bank trading desks ultimately converged into a cross-asset business focused on generating alternative sources of return. Kimberly explains that at its core, QIS is about identifying persistent factors, facilitating risk transfer between market participants and packaging these exposures in a transparent and efficient way. The discussion turns to carry and volatility risk premia. Kimberly describes carry as compensation for taking a risk that another market participant needs to transfer—essentially the insurance premium of financial markets. Importantly, she explains why an attractive backtest alone is never enough. Investors must first understand the economic hypothesis behind a premium and whether the market structure supporting it is likely to persist. Lastly, we discuss crowding, leverage and correlation. Kimberly explains how a strategy can evolve from alpha to a fairly compensated risk premium, and how crowding can initially make performance appear stronger before a market shock exposes the underlying positioning. Unexpected correlations and forced unwinds can then turn what should have been a contained event into something much larger. I hope you enjoy this episode of the Alpha Exchange, my conversation with Kimberly Gallant.
Kimberly Gallant, the Global Head of QIS Structuring at CIBC, has spent nearly two decades working across quantitative investment strategies, derivatives and structuring. Our conversation is a deep dive into the evolution of QIS and the economic rationale behind these increasingly important systematic investment strategies.
We begin by exploring the origins of QIS and how ideas from academia, pension funds, commodity markets and bank trading desks ultimately converged into a cross-asset business focused on generating alternative sources of return. Kimberly explains that at its core, QIS is about identifying persistent factors, facilitating risk transfer between market participants and packaging these exposures in a transparent and efficient way.
The discussion turns to carry and volatility risk premia. Kimberly describes carry as compensation for taking a risk that another market participant needs to transfer—essentially the insurance premium of financial markets. Importantly, she explains why an attractive backtest alone is never enough. Investors must first understand the economic hypothesis behind a premium and whether the market structure supporting it is likely to persist.
Lastly, we discuss crowding, leverage and correlation. Kimberly explains how a strategy can evolve from alpha to a fairly compensated risk premium, and how crowding can initially make performance appear stronger before a market shock exposes the underlying positioning. Unexpected correlations and forced unwinds can then turn what should have been a contained event into something much larger.
I hope you enjoy this episode of the Alpha Exchange, my conversation with Kimberly Gallant.