Aestimo Technologies has developed a principles-based approach to investing.
Principles are used as a conceptual basis for the development of a multidimensional quantitative process to create a return asymmetry with positive bias.
As an example, it is well known in the equity markets that there is statistically speaking a “year-end rally”. A principle-based process asks the question why that phenomenon exists. Is it simply the result of spurious correlations measured in the past, or is there something more fundamental at play?
Because we know that the “year-end rally” can be explained by rational human behaviours, conditional on specific regulations, we think that, statistically-speaking, it will reoccur in the future. We call such a behavioural linked phenomenon “a conditionality”.
Our principles-based approach to investing consists on building an overall investment strategy that takes full advantage of conditionalities.
By analogy with accounting, where principles-based accounting is considered superior to rules-based accounting, Aestimo Technologies believes that principles-based investing is superior to rules-based investing.
In the “year-end rally” example, a pure rules-based quantitative process would require a fully invested portfolio at year-end, for no other reason that such a strategy worked well in the past. When implemented in the future, sometimes rules-based investing works well, but in others it might affect negatively the returns especially when the rule is the result of a spurious correlation. By comparison, the principles-based quantitative process removes, as much as possible, spurious correlations to concentrate on conditionalities.
Prior to co-founding Aestimo Technologies, Dr. Georges Duponcheele published papers with the credit quantitative community on the need for conditional pool correlations to be taken into account by policymakers when developing the new Basel III accord and European standards. This notion of conditionality, adopted by regulators and lawmakers, is the mathematical expression of well-known behaviours in specific credit assets.
The Aestimo Technologies team has extended the conditional behavioural concept to the equity markets and its instruments. Whereas in credit assets this concept is long-term and mono-directional, in the equity markets it is short-term and bi-directional.
By harnessing short-term conditionalities in its proprietary models, Aestimo Technologies aims to produce superior returns over the long-term horizon.
The quantitative process at Aestimo Technologies consists of a supervised learning process between mathematically-optimised strategies (MOS) and principles-based strategies (PBS).
Once a MOS is discovered, it is analysed thoroughly by the team. A MOS that can satisfy a principle can become a PBS. Each new PBS is assessed to see whether it adds value to the existing stack of already approved PBS.
When this occurs, a new generation of the PBS stack is produced and translated into an implementable algorithm.
These human-machine interactions are repeated until no new PBS can be generated.
The logo of Aestimo Technologies symbolises how the stacking of short-term directional PBS derived from conditionalities is designed to produce superior returns over the long-term horizon.