January 2024
Here Come the Quants: An Evolution in Risk Management
Including quantitative analysis and new technology in the 1990s became part of MFS’ firm-wide risk management platform and demonstrated that not only is the risk management process repeatable, but it helped MFS stay a step ahead of market disruptions.
The 1990’s is often seen as the Information Age, as both computer speed and processing power increased dramatically. At the time, risk management was largely an informal process across much of the industry, but MFS® looked to systematize it in two ways to better benefit clients. MFS hired quantitative analysts, or “quants,” who were tasked with generating data-driven risk reports using advanced mathematical and statistical methods, and the firm brought in new technology to model and evaluate risk.
One of the first quantitative analysts MFS hired was Chief Investment Risk Officer Joe Flaherty, who joined the firm in 1993. In describing the purpose of these analysts, Flaherty noted “We were making sure that the risks that we were taking were consistent with our philosophy, consistent with where we thought we had skill, consistent with what we told clients.”
The portfolio managers met regularly with quant analysts to ensure that they were acutely aware of topical market conditions that could inform long-term growth. This pioneering cross-departmental effort created even greater investment value for clients. As former Co-CIO for Global Equity Kevin Beatty put it, “There’s no company in the world that has their quant people sitting in on meetings with equity and fixed income [the way MFS does].”
By also updating the firm’s technological capabilities, MFS modernized the firm’s risk management platform, so that it now had the ability to store and algorithmically organize data more quickly. Where it once took a full day or more to update a risk investing model, the enhanced computing power allowed models to be updated instantaneously.
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MFS’ blended research strategy, an outgrowth of innovations that began in the early 1990s, enabled the firm to remain a step ahead, even with the unforeseen market disruptions of the twenty-first century, including the global financial crisis that hit in 2007 and years later when COVID-19 put the world on pause.
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With the addition of quantitative analysts and advanced technology, the firm strengthened its risk management strategy, which proved vital during the fallout of the 1998 Russia default crisis and the subsequent dot.com bubble, protecting clients from considerable losses. “We talk about blended research as being a blend of the fundamental and quantitative; risk management is a blend of all of these quantitative models,” Flaherty said. “[We] want to look at risk through as many lenses as possible, because we understand that they’re only simple approximations of a world that is much more complex.”
MFS’ blended research strategy, an outgrowth of innovations that began in the early 1990s, enabled the firm to remain a step ahead, even with the unforeseen market disruptions of the twenty-first century, including the global financial crisis that hit in 2007 and years later when COVID-19 put the world on pause.
MFS continues to bring breadth and efficiency to its strategies today, broadening opportunities and decreasing risk for clients, bridging equity and fixed income as part of the transparent and repeatable long-view investing process that has been central to the firm for 100 years.
Please note: Not all of the funds included in this material may be available for sale in your country.