August 28, 2023


Stefan Wagner (vestr): I'm here today with Pathmajan Rasan, founder and CEO of SmartRiskAlpha. Thank you very much for taking the time to talk to me. I would like to talk to you today a little bit about SmartRiskAlpha, something that's close to your heart, and you found it as a company. But what in the first place actually motivated you to establish SmartRiskAlpha?

Pathmajan Rasan: I think to explain that I might have to go a little further back. I've been developing and trading systematic strategies now for 35 years and if you want to make above average returns, then you have to be a bit different from the crowd, you have to be better than the crowd and you have to be also systematic because once you have got the edge, you've got to be able to make the returns on an ongoing basis. So, if you want to survive for a long time, you have to be systematic too. And so, in order to do that, I developed an analytical framework where I could have access to all my data, all my analytics, so that I could quickly test ideas and then to take it to strategy level and then to be able to execute it.

That was my way of thinking and way of leapfrogging ideas. I started that at Salomon Brothers back in the 90s. And then the first hedge fund, I rewrote the whole thing. Second hedge fund, I rewrote the whole thing. Third, I did the same. Then at Brevan Howard I did the same and then more recently at PGIM. And so, every time I rewrote it, it became more and more advanced to a point where right at the end I was able to virtually create any rule-based strategy quickly and to be able to take it right up to being able to be executed. But the problem was, by then, you know, 35 years of this and then before that, I was a civil engineer for six years, and then I had an MBA for two years. I had been working for 40 odd years! I mean, that's about time to kind of plan your exit, you know. But then there was this technology staring at me and saying, “what are you going to do with me?”

Stefan Wagner (vestr): With all that knowledge accumulated.

Pathmajan Rasan:  Exactly! You know, it was such a powerful thing. So, what I decided to do was to open it up for others to be able to use it, and for me to kind of help. And so really moving from being a player to being a coach. I mean, it is a commercial venture, but it's also an intellectual journey to help others. And at this stage of my career, it's a perfect thing to be doing.

Stefan Wagner: That's very, very noble of you, but I appreciate that. I'm sure there are many benefits of SmartRiskAlpha, but if you want to have to break it down, you know, humans, we're very good that, what are the top three, what would you say they are? 

Pathmajan Rasan: So now that I've developed this technology over the last couple of years for others to be able to use, professionals of your calibre can now create sophisticated investment strategies using underlying securities and then to be able to trade it digitally.

The initial application I suppose is Solutions. It can be for those who are providing Solutions to be able to create strategies for their investors. Or if you are an advanced institutional investor, you could create your own, have more control over what you create and to be able to trade it. So that's kind of the Solution side of it. Second, I would say innovation. You know, all of us have a certain expertise and we go through life operating within that framework. But innovation is when you see something that you hadn't expected to see - some other kind of angle. So, what SmartRiskAlpha does is it gives you a very powerful second perspective. Then when you look at something from that perspective as well as from your own perspective, you might see something that you may not have seen before.

Stefan Wagner: You didn't notice before.

Pathmajan Rasan: Yes, that's right. So, you can then develop it. And this enables you to develop that idea and create it into a potentially winning idea.

I originally built this for my framework for me to be able to think. So, the way I've designed it now is that the framework can be used by others to build their own way of thinking using this so that they can personalize it and grow with it - so that they have a second perspective that is very powerful that they can work with and build on.

Stefan Wagner: Yeah, I think personalization, particularly in the investment industry, is a big, big trend. Funnily enough, it started in media. You know, your TV station now you have Netflix and Spotify now. It used to be everybody had to go to the big funds because it was the cheapest way. But because of digital solutions, you can now personalize and give clients exactly the kind of risk return they want. Which leads me to my next question. You know, everybody talks about risk. And I always like to ask people, what is your definition of risk or how do you measure risk?

Pathmajan Rasan: So, you know, within a portfolio context, risk is multidimensional right? You have the sector risk, country risk, leverage and so in a portfolio you need to be able to control that so that you don't have any kind of shocks, as it were. But from an overall risk point of view, volatility has worked out just fine for me. It's a relatively simple measure, but it's a very effective measure. I have used that for sizing trades, with risk parity or then also assessing what the performance of trades are like. So that's what I've done. The other risk I would say is diversification- how we can have uncorrelated assets together, but knowing how these uncorrelated assets work in distress, is quite important. So that is something else that people should be aware of and be taking care of when they construct portfolios so that they're not disappointed in bad times.

Stefan Wagner: Which sort of leads me to my next slightly cheeky question I have to say. You know, there's always the argument I'm investing, what you're doing is speculating and what you're doing is betting. But nobody really can often explain to me what actually is the distinction or if it's very personal. But I always like to ask, what distinction you make when people say this is investing, this is speculating, this is betting?

Pathmajan Rasan: Good question, actually. So okay. So let me just think. I would say that speculating and betting is maybe a low probability bet with an expectation of a high return. 

Stefan Wagner: Big odds. 

Pathmajan Rasan: Big odds. That's right. That's a good way to put it. Whereas with investing, you are looking to take at least above 50% average bet and it has to be accompanied with maybe an investment philosophy, an edge, a way to capture it, a strategy, risk management and so on. Because with investing, if you want to survive in the longer run as an investor, then you have to have all of those things and you are really building returns brick by brick in order to kind of get there.

You know, there isn't a free lunch as an investor.

Stefan Wagner: - This is probably one of the best ones I've ever heard so far. Thank you.

Pathmajan Rasan: As far as betting and speculating is concerned in some cases it is done for excitement, but in some cases, and it is typically on the retail side that that I've seen mostly of this, it is all the information they have to take investment bets . So, one of the things I'm looking to do with this is to roll out a kind of a course on better investing, right from data, right up to execution - a course together with a retail version of this technology so that people can actually take bets that have better odds because you know, they are spending their own money doing this and so it's very important that they make the right decisions.

So that's something I'm planning in due course. 

Stefan Wagner: – Excellent. Obviously, reducing risk is always a common goal for investors. And often, you know, I have this conversations with people who want an investment strategy and they're saying, you know, it's all very nice that you're telling me it will outperform the index by 3%, but I might not even need this. I would rather have less drawdowns for a better word because that's usually when I as an investment manager have the potential to lose capital. People don't want to hang in there when they see big drawdowns. So, I would rather swap performance - outperformance, let's say it that way, versus drawdowns or minimize the volatility. Is that something SmartRiskAlpha can help as well, if I understand this right?

Pathmajan Rasan: Very much so. So, this goes to the heart of diversification, doesn't it? So maybe I could tell you this story, I don't know how long this is going to take, actually.

Back in 92, I was in the equity strategy and Salomon Brothers were so into prop trading.

Stefan Wagner: - Was basically a hedge fund!

Pathmajan Rasan: It was a glorified hedge fund, wasn't it? And so, this was the first time I was beginning to create content. In a very short space of time, I had come up with a Value strategy built on Excel. So, I took it to the prop trading desk and they said “yeah, we'll give it a go”. And they put it on. And it didn't perform that well in 92. And so, after three months they cut it. And then I went back and 2 or 3 years later I came up with a multi-strategy portfolio that was very successful. But the thing about value was that after 92, it had an amazing run. You know, had they held it on a little longer...

Stefan Wagner: - But, isn't that quite often the case with strategy that when you put them in place the first time, they don't perform and then suddenly they perform.

Pathmajan Rasan: It could but it is really timing. We don't give enough credit for luck. I mean, luck plays a huge part in our successes in general and also in investing. So, the thing about this was that had they held it longer and it had performed, I would have become a value investor. And had I become a value investor, I would have had a glorious run until like about 2015/16. And then I would have been finished.

Stefan Wagner: End of career!

Pathmajan Rasan: Yeah, because it's just one idea. It's a brilliant idea, but it's an idea that failed for a considerable period. So, fortunately I did multi-strategy as it turns out. And the nice thing about multi-strategy is that it is diversified. When something is doing well, something else is not doing well. So, to be able to diversify your ideas is a very important thing.  And to look back at times of big drawdowns and find the strategies that have performed well during that time. So, one of the things that Smart Risk Alpha does is provide a huge range of strategies, actually hundreds of strategies.

When you apply it onto different geographies, it comes to almost thousands. And so, it gives investors the opportunity set.  If they have a set of holdings, they could look at strategies that may be least correlated to them, that has performed well during the past drawdowns, create a portfolio out of that and to trade it. So that's really one of the ways that it can be done.

Stefan Wagner: Excellent. Something that has been becoming more and more visible and discussed and important for many investors - ESG and, you know, ESG investing can definitely address social environmental issues. And I think even things like, you know, if people are happy at the company they work at. Is it measurable that it has a positive impact or is it just because money has to be put into it? Or what's the challenge with ESG? In a sense actually, it may be difficult to measure as well?

Pathmajan Rasan: So, I have taken a look at some established datasets for ESG from a systematic standpoint first of all.

Pathmajan Rasan:  I haven't seen any discernible return generation out of that data, but then it is to an extent to be expected because for ESG data, the history is not that long compared to systematic data and the history is also varied. I think the way it is measured today, ESG data is not as it was before and the data is backfilled and so on. So that's the issue. And the third thing is the data doesn't vary that much. If a company is low carbon and then there has to be a new piece of information for the price to change. And so, from a systematic standpoint, I can see why it doesn't actually work. But ESG is a very important consideration. In many cases it's mandated and there is a huge reason why investors are very keen to have ESG funds. So, our solution is to combine ESG with return generating strategies. For any of the ESG positions that the investor is interested in, for them to be more overweight, the longs and be underweight, the shorts, for example, or be long-short in that situation but to combine that with return generating strategies.

So then you have performance. One of the risks I feel with ESG is that if you simply go on purely ESG data and the funds don't perform, investors can get bored with it or even disappointed.

Stefan Wagner: Frustrated and cynical actually, to a certain extent right now. You mentioned earlier you have been doing this for quite a while. Is there something you could share? You know, what has been your most significant learning in the investment industry in 35 years? Also, before when you were a civil engineer?

Pathmajan Rasan: The thing is, it's been a bit of a freakish career actually, because although I worked for big organizations, I have been able to control what I developed. I worked in small teams. I was able to follow my passion and kind of do stuff. Also, when you run a small fund management company, you end up doing every job in fund management and then I pretty much worked on every Asset Class and I have done quantitative, discretionary and quantamental as well.

So, one of the powerful things about that is I'm able to relate to pretty much anyone in the Fund Management industry, which is a lovely thing to be able to do. But also, you know, it helps with a technology like this because you are able to bring all of that into play in order to provide the best possible thing. It's been a brilliant run actually. But I think in terms of longevity, I would say for the younger people who may be interested, is continuing to learn the next big thing and to be able to reinvent. First, self-learning is very important. And second, to be able to reinvent yourself because change has been fast in the past and it's going to be even faster, I think, going forward. And so, knowledge and learning and that attitude to learn I think is going to be key for people.

Stefan Wagner: It's also something maybe you can tell us about yourself that most people don't know.

I broadly know all the things that you said here maybe because we know each other. But would you have something new?

Pathmajan Rasan: Right. That's true, actually. The thing is, I play cricket and one of the nice things about sticking around this long is that lot of people fall away and now I'm playing for the County! But for the senior side. And I feel if I can stick around, first of all, stay alive and then to be able to be fit enough to play when it comes to over 70, I think I could be playing for England! I have got a real chance!

Stefan Wagner: I'm going to root for you. I'm going to come to that game, definitely!

Pathmajan Rasan: So that's one. And the other thing I'm looking to do, this is a little bit speculative which we talked about earlier is to is to write a hit song.

Now that I know that you are a bit of a music buff yourself, I am going to be talking to you a bit later.

Stefan Wagner: And we're going back to, you know, the financial industry looking forward, what sort of trends and challenges do you see for the future of the industry? I think you touched on a few things.

Pathmajan Rasan: At the moment. I feel it's struggling with legacy technology to some extent. I think there is too much marketing and I think there is too much commoditization in my view.

Stefan Wagner: I think it's maybe the commoditization also comes into this because it's such a highly regulated industry and if you stay in your lane for a better word and don't innovate, you're safe.

Pathmajan Rasan: Well that is what is being rewarded at the moment, Clearly, money chases after success and that might well be the case. But I feel, you know, if return generation is your thing and investors should be focused on this then leading-edge technology would be important.

You know, we have brilliant technology these days. More engineering than marketing, more customization than commoditization would be good. And partly why I was excited about SmartRiskAlpha was it fitted where we are heading as well. We have the technology today to be able to have the kind of customization I've been talking about. And my prediction is that in five years what we've been talking about today with SmartRiskAlpha and the way you can do things digitally will be mainstream.

Stefan Wagner: If I would be a betting man, I would take that side of the trade as well. Um, great. I mean, thank you. Thank you very much for taking the time for everybody who was listening and liked what they hear. I mean, what is the best way to get in touch with you?

Pathmajan Rasan: LinkedIn probably is the easiest and I'll be happy to connect if you want. And then we can communicate.

Also our website is That's another way to get through to me.

Stefan Wagner: Perfect. Thank you very much.

Pathmajan Rasan: Great. Thank you, Stefan.

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