Stephen A. Gorman

Senior Managing Director, Director, Tactical Asset Allocation, Wellington Management, Boston, American

Could you tell us about your background and what you are doing today?

I have spent almost 25 years in quantitative investment roles, primarily in the multi-asset and hedge fund spaces. Today, I manage a platform of risk-balanced, multi-asset portfolios for Wellington Management Company. At Putnam Investments, we built a quantitative tactical asset allocation process relying primarily upon regression-based time-series methods and portfolio construction algorithms. At 2100 Capital my focus shifted to a multi-strategy hedge fund in which we managed a multi-asset portfolio using technical trading rules, a market-neutral equity portfolio using a contextual cross-sectional model, and a portfolio construction process combining optimisation and several risk models. More recently, I have been managing a platform of risk-balanced, multi-asset portfolios combining risk budgeting, target volatility, fundamental indices, opportunistic hedging, tactical asset allocation and alternative betas. In terms of education, I have a BA in Economics, an MBA concentrated in Finance, and I have a CFA designation. Particularly during my MBA studies, I focused upon more analytical courses.

Why did you decide that you needed to do a PhD at this stage of your career?

There were a couple motivations. First, and most importantly, I sought professional development as it relates to research. I wanted to find literature, analytical techniques, academic contacts and professional relationships that could help me to conduct better research, to improve our portfolios and to create a better experience for our clients. Second, I enjoy learning and I like challenges – this programme satisfied both. But what is fundamental compared say to a specialised MSc is the research inclination of this programme. My career has been anchored on research – asking questions, solving problems, and endeavouring to continue learning. I always have on my desk a stack of papers, some that I have read and others that I intend to read. The education never stops. So, for me, a PhD programme is right in line with the way I approach my professional life, always anchoring my decisions on evidence supported by a systematic, scientifically-grounded approach.

Why choose this particular programme?

I have been following EDHEC since attending a Hedge Fund conference in the mid 2000s. The focus upon investment and risk management was naturally appealing to me. I ultimately selected this programme due to the quality of the professors and the structure of the curriculum (core courses, electives, a week of classes per quarter, etc). I also expected a blend of foundational theory, advanced concepts and practical implications. My expectations have been met generally by the core courses with the split varying by course – e.g. the Empirical Methods in Finance and Continuous-time Financial Economics provided more numerous practical lessons for me. The two elective seminars I recently attended were very good and directly applicable to my investment research.

I also valued the fact that, unlike the students in many full-time PhD programmes having little or no practical experience, all the students in this programme have industry experience. This experience enhances classroom discussions, often improves the quality of the questions asked of professors, and enhances interaction among students outside the classroom. For me, this improves the learning experience and increases the networking value.

What was your experience in this first academic year?

The first year was as challenging as advertised by Professor Garcia. Reading, assignments, class attendance and exam preparation require a substantial time commitment. I was told to expect approximately 20 hours of work per week on average and that has been roughly my experience with some weeks being busier than others depending upon deadlines and the work-home-school balance during the previous week. But the time invested has been worth it. I have learned a lot. The instructors have been excellent and I have enjoyed interacting with PhD students from all over the world. I spent quite a bit of time in the class notes because I wanted to understand all the methodologies and derivations. This often produced questions. The professors were responsive via email or Skype but there is a natural limit to this. It might make sense to have a tutor or teaching assistant available to those with an abundance of questions.

What is, according to you, the main challenge of the programme?

The greatest challenge is time management. With a demanding job and five children, I never have sufficient time in a day. The support of my wife, Tammi, has been critical. For the core courses I spent some time on studies at the end of work days but concentrated a lot of my studying during week-ends and vacations which is not without consequences. Often my two youngest sons would come into my office and complain: ‘’Oh no Dad, don’t tell me you are doing homework again!’’. This is where you need the support of your wife. She can divert their attention and explain that Dad will play basketball later in the day after he finishes his work. During a family holiday just prior to exams I had to dedicate some time to studying in the morning and reserve the afternoon for family activities. Of course the requirements of my job also come into play as our clients and their portfolios take priority over school work. Managing all of this makes for a challenging but rewarding life.

A secondary challenge was math review. While I do quantitative research, the math is often of a certain variety. There are elements of advanced calculus I have not used in years. I reviewed a lot of this prior to the programme beginning but still needed to do some supplemental review, particularly during the financial economics courses.

How did the programme impact your daily work?

Since I did most of my core course at nights, on weekends and on vacations, the biggest impact was a limitation on my ability to allow my day job to extend regularly into the early evening. I needed to modulate my study time to accommodate business travel, market volatility and other unanticipated tasks. For example, during market events (and there have been several during the past year) I must be doubly attentive to our portfolios for risk management and opportunity assessment reasons and I must be even more available to answer questions from clients and colleagues. Knowing that I had school work to do weighed on me at times, but it had to wait until work settled down.

In terms of the school work paying dividends at work, I am utilising some of the modelling and diagnostic techniques from the Empirical Finance and Continuous-time Financial Economics courses as well as the first two elective seminars. This is just the beginning and I expect to gain useful tools from future elective seminars and particularly the dissertation process.

Do you think there are benefits to having a majority of professionals in the class?

As I mentioned previously, I believe that it is very important to maximise the number of professionals in the class. Having students in similar situations in terms of work experience, families, etc. creates a natural bond, facilitates networking and brings experience to classroom discussions. I find that the more experience a student has, the more his questions in the classroom will be relevant and useful for his or her colleagues. Since the background of the students in the programme is quite diverse, it is often the case that a question will open a new way of thinking for the others.

In some courses, assignments can be done in groups so this is another way of benefitting from your fellow students. Experience collaborating professionally can make this process easier, particularly when one is working with students spread across different geographies. This doesn’t guarantee a good group experience but I believe that it reduces the likelihood of a poor one. The unpredictability of my work and home schedules forced me to do all my assignments alone since I did not want teammates to be hostage to the vagaries of my availability. But I gladly would have partnered with a number of my classmates under different circumstances and likely would have learned more from the assignments.

The next stage of the programme will be the submission of your dissertation proposal; could you please introduce the topic you would like to develop in your thesis?

The portfolios I manage include allocations to alternative risk premia – quasi-beta strategies spanning carry, trend, convergence and equity style premia. While the latter has received significant attention from academia, the entire universe has not. However, this is an area of significant interest among practitioners. I would like to focus upon creating a unique database of alternative risk premia, distilling common risks and testing against traditional factors, assessing robustness and data mining vulnerability, and evaluating the role of these returns in a diversified portfolio. Although the number of anomalies put forward in the academic literature is exploding, one needs to distil the common threads that are producing specific risk premia and to establish how/why these can add value to a portfolio. What generally is missing is a robust assessment of the statistical properties of the empirical findings. What may appear to be an investment opportunity may not survive serious statistical scrutiny.