A View from the Top: A Brief Interview with Kent Peterson, PhD, Modelist's CIO

We’re thrilled to present a brief but enlightening interview with Dr. Kent Peterson, the Chief Investment Officer at Modelist. With an impressive career spanning over 24 years in the investment arena and a deep academic background, Kent is a treasure trove of knowledge and experience. From his early days at a groundbreaking hedge fund to his recent deep dive into the world of crypto investing, he has consistently stayed at the forefront of the industry. Join us as we get to know Kent, uncovering the insights and philosophies that make him an integral part of Modelist’s story.

Kent, can you tell us a little bit more about your background?

"Sure, I have been on the investing side of the house for about 24 years, with most of that split between hedge funds and more traditional asset managers. Over my career, I have been exposed to a bunch of different investing disciplines, but my interest has always been understanding what macroeconomic and other factors drive and predict markets, then modeling those factors to see objectively which works. I find systematic or quantitative investing makes life easier for all involved because it gives you a method that you know works and also removes emotions from the process, and few people make good decisions of any kind when they are panicked, stressed, or overly exuberant.

To tell a bit more of the backstory, I came straight out of graduate school into what at the time was a fairly small and unknown hedge fund, called Bridgewater Associates, where I worked for about 7 years modeling economic market drivers and how to trade large positions. It was a good education because I learned to be skeptical of everyday wisdom and sort what was truth vs. the fiction that was being peddled as investment advice. I left there in 2005 and spent the next 11 years, mostly as a Senior Portfolio Manager, at Columbia Threadneedle, focused on Asset Allocation and Alternative Portfolios. My work at Columbia was spent in three areas: One, developing systematic ways to allocate between traditional asset classes like stocks, bonds, and cash. Two, dreaming up better strategic allocations for asset portfolios like Risk Parity. And three, developing non-traditional and unconstrained portfolios that produced exceptional gains in the financial crisis of 2008-09. My next recognizable financial position took me to the UK from 2018 to 2022, where I was effectively the global head of asset allocation for Santander Asset Management, overseeing between $40-50 bln in mixed asset portfolios. This was an interesting experience as European and Latin American mutual fund and asset allocation issues are not the same as in the US. Fees are higher, rates in many countries were negative, and investors are much more conservative. In many ways, US investors are blessed with choice. For the last year and a half, I took a deep dive into crypto, working at a London Fund of Funds that invested in other systematic crypto hedge funds. Since I try to be a lifelong learner, it was a fascinating education about a different part of the financial universe."

What is the most important thing you have learned in your career?

"I can’t say that there is one lesson, but rather several. First, it is important to find an investment process that objectively works and will produce positive expected returns going forward. The nice thing about systematic investing is that if you have done your part right—that is, the research, and done it correctly so that there is sample size and logic behind what you are doing—you end up with exactly that: a way of making money that you know objectively works. The danger is that you can fool yourself, and you are the easiest person to fool. So being very skeptical of results and finding ways to stress your models and kill your bad ideas is an important part of the process. Second, a lot of what is sold in the financial media is meant to generate sales and not necessarily profit, so again, systematic investing can cut the wheat from the chaff. It’s pretty easy to test an idea and see if it lacks validity. Third, making investment decisions rationally and not emotionally or from FOMO is critical. And again, this is facilitated by a systematic investing process. I have certain family members who get interested in stocks every twenty years when there is a bubble, and they always get in at the peak or sell at the lows. Emotions don’t belong in investing. Fourth, to be in investing, you need to have a passion for it. Since graduate school, I have been interested in markets and that interest has never really waned. There is always something to learn."

What is your general philosophy about building model portfolios for advisors?

I would say a couple of things. There has to obviously be some value-added on our side. We want to give advisors models and tactical decision tools that objectively will generate profit over an investing cycle. Two there has to be choice and flexibility. How those models are applied and customized from a risk and return objective or strategic perspective needs to be left up to the advisor who intimately knows their clients’ needs. It's our role to better provide them with the tools they need to do their job, whether that means a plain vanilla range of asset allocation portfolios from conservative to aggressive, or something with a more bespoke and specialized objective. Obviously, this has some limits. We aren’t individual stock pickers, but we can and will be able to point towards potential factor or sector rotational models that can add value and are useful. We are trying to offer a menu of choice and serve the advisor, not force ideas upon them. And part of that is providing them with an understanding of what we do, a narrative around our decision making which they can repurpose and collateral to have a discussion for why and how decisions were made."