Smart advisers, smart machines

DEC 15, 2013
Brian A. Hunter says that technology is important, but it is no substitution for what people can do — that is, think. “Today the world is so much more complex and laden with so much information,” said Mr. Hunter, founder of Strategic Capital Allocation Group in Boston, which employs a small cast of quantitative analysts to help implement investment strategies. “Technology is very important to give you leverage to be able to have the quiet moments to think,” he said. “People have forgotten that thinking is important.” Mr. Hunter's thinking has yielded some bold ideas about investing — ideas unique enough that he and affiliates have built software to implement them. The software is based on his strong disagreement with the simplistic approach that many investors and their advisers take to manage risk. Investors focus most on returns, not the risk they take on to achieve those returns. “The platforms that were available through ... wirehouses were inadequate for our purposes and our clients,” said Mr. Hunter, a veteran of Morgan Stanley, among other financial services firms, noting their dependence on the premise by which securities analysis is taught in universities. “They rely on modern portfolio theory.” Mr. Hunter, 65, parallels the highly technical models that he and his colleagues built to the engineering concepts used to test the reliability and compatibility of airplane parts. “We build a portfolio and manage it through a dynamic world of multiple risks, just like a plane going through multiple storms,” he said. Although neither the details nor the success of Mr. Hunter's investment strategies can be independently verified, his team's use of technology to deliver on those strategies was recognized for excellence in the 2013 InvestmentNews Adviser Technology Study. They combine the insights derived by their software with their perspectives on portfolio managers, asset classes and macroeconomic trends in building portfolios for a select group of institutional clients and ultrahigh-net-worth individuals. Mr. Hunter's résumé shows where his brainy enthusiasm comes from. In an era before bold interdisciplinary majors became common for undergraduates, he combined an aerospace and mechanical-sciences degree at Princeton University with coursework at the university's Woodrow Wilson School of Public and International Affairs. Then he earned a master's degree in urban and policy sciences at Stony Brook University, and cut his teeth as a consultant at The Boston Consulting Group Inc., Bain & Co. Inc. and Lehman Brothers Holdings Inc.

DIVERSE BACKGROUND

Mr. Hunter's diverse background informs his insistence that although aerospace moved away from basic mathematic models decades ago, finance is stuck in the 1950s. Just as aerospace moved on to more-sophisticated engineering concepts, finance has to move beyond modern portfolio theory, he said. “Why would you want it to fly your portfolios?” Mr. Hunter said. Despite his success with technology, he warned that software is no panacea, drawing on a quote attributed to cosmologist Stephen Hawking to illustrate the importance of knowing the assumptions embedded in our use of technology: “The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.”

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