Mr. Peters: PanAgora Asset Management is a quantitative asset management company. We've been around since 1985, and we were originally a division of The Boston Company, which at that time was owned by the old Shearson Lehman. In 1989 we spun off as a joint venture between Shearson Lehman and Nippon Life as an independent company. And that ownership was replaced by Putnam Investments and Nippon Life a few years ago. We're still a quantitative asset management company. We do everything from passive quantitative investing, which is Index Funds, up to active quantitative investing, and we do it across all markets. In fact, the name PanAgora means 'across all markets' in Greek: pan being across, and agora being the marketplace. So that has been our function. We've long believed that the quantitative approach to investing is the more disciplined way to invest, and over the long term, it wins out. But we also believe that you have to add some element of judgment in the execution during particular circumstances when what's going on may not be in the experience of the model itself. Within PanAgora, I have two functions: I'm the Chief Investment Officer, which means I oversee all the investment processes, including the investment philosophy and the execution; and I'm also a portfolio manager. I manage all the asset allocation strategies here at PanAgora.
TWST: What is the overall investment philosophy at PanAgora?
Mr. Peters: The overall investment philosophy is that market
inefficiencies occur because of behavioral reasons. In general, people
overweight information which they believe they understand, and they
underweight information which they don't understand or that doesn't fit
in with their concept of how things are. A good example of this is the
recent tech bubble. The tech bubble arose, we believe, because we had
an economic experience that was outside of history; people thought we
had strong growth and low inflation, and nobody quite understood why
that was happening. Alan Greenspan gave a few reasons. One was that
commodities were low because of the emerging markets collapse in 1997.
The second reason he gave was, productivity gains due to technology.
There were a couple of other reasons, but the one that people latched on
to was the productivity gains. After a while, people simplistically
decided that the reason for the good economy was strictly because of
productivity gains. The productivity gains, of course, were due to
technology, and because of that, technology companies were the way to
invest. In effect, it's taking the part of the explanation they
understood the best, giving it a very strong weight, and then
extrapolating it exponentially into the future. On the other hand, there
was plenty of information that this story was not true. Among them was
that tech profits were not as strong as people thought; they were going
up, but a lot of their increase was not due to sales, but instead was
due to investments. People also ignored the impact of the strong dollar
upon earnings, and these things eventually caught up with the market
itself as a whole. We believe that people tend to overweight information
they understand and underweight information they don't understand. This
causes deviations from fair value, and so all of our processes try to
take this into account. Now what it means is that the market, like the
economy, is an evolving, complex, dynamic system, and because of that
you need an investment process that is also dynamic and adaptable. Many
people think of quantitative processes as being rather disciplined or
fairly rigid. Our process is adaptable and evolves with time, and it
always includes a combination of multiple bits of information or
factors, including value, economic and monetary factors, and technical
factors.
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