As one of the most innovative and thoughtful finance academics working today, Andrew Lo has spent his career encouraging investors to take an adaptive and forward-thinking approach to financial markets. Which is why we are so pleased to have Andrew speaking at the CLC’s inaugural DB New Ideas Forum being held on February 22, 2024, at Toronto’s Shangri-La Hotel. In advance of his talk, we asked Andrew a few questions about investing now and in the future and what DB plan sponsors should be thinking about as 2023 draws to a close.
Has the advent of AI changed how you view markets and how you invest?
Yes, absolutely. AI has now become an indispensable set of tools — from machine-learning techniques and, more broadly, data science to natural language processing and generative AI — and it’s hard to imagine keeping up with the flood of information without these tools.
Asset owners like Canadian pension plans are increasingly turning to private markets – how do things like private credit and private equity fit into your investing hypotheses (i.e., adaptive markets)?
Private markets are even more prone to deviate from market efficiency because of the inherent frictions in assets that don’t trade regularly and aren’t benefiting from the “wisdom of crowds” the way publicly traded securities do. Therefore, the principles of the Adaptive Markets Hypothesis are especially relevant for these markets.
There seem to be so many pressures on financial markets right now, from rising interest rates to technology to geopolitical tensions – what keeps you up at night about markets these days? Does this convergence of issues make systemic risk harder to manage?
What keeps me up at night is a different set of issues today than a few years ago. I used to worry about asset bubbles and the implications of too much financial leverage on systemic risk. Now I worry about the next pandemic, the potential use of nuclear weapons by Russia in Ukraine, and the escalation of tensions in the Middle East due to the Israel/Hamas conflict. Systemic risk is not only harder to manage, but it’s become harder to measure!
Interested in joining us at the 2024 DB Pension New Ideas Forum? Please contact Joanne Boccia at firstname.lastname@example.org.