October 2019
Vol 6 | Issue 252

Q&A with Kevin Means of Sapient Investments

CIO and Founder

Principle Series:

Sapient Investments offers a Global Macro Portfolio using separately managed accounts–essentially a hedge fund without all of the costs and hassles of hedge funds. We are taking advantage of the explosion of niche-focused ETFs, coupled with our expertise in quantitative risk and return modeling and our experience in factor selection and timing, tactical asset allocation, and long/short fund management. The portfolio consists of long and short positions in ETFs and closed-end funds (CEFs) selected from about 1000 different asset classes, countries, currencies, sectors, industries, bond segments, and investment factors (such as small vs large, growth vs value, high quality, low volatility, high momentum, etc.).

What we seek to do is provide what alternative investments were traditionally meant to provide but seldom actually do: an attractive absolute return with a very low correlation to stocks and bonds. An attractive return is achieved using a number of proprietary quantitative risk and return models that we have developed and used successfully over a 30-year career in money management, including in a five-star long/short mutual fund.
See our website for details: www.SapientInv.com.

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Who is your target investor?

We invest for high net worth individuals and families. We are probably an especially good fit for a family that is looking for a “one-stop shopping” approach to alternatives. This may include families that have been hesitant to embrace alternatives because of their many problems, including:

• poor performance (ours has been quite attractive)
• high fees (ours are relatively low)
• burdensome legal and regulatory paperwork (we have very little)
• slow and complex tax reporting (we offer a timely 1099 rather than a delayed K-1)
• lack of liquidity and transparency (we offer the ultimate in both)

We would also appeal to families concerned about wealth preservation and discouraged by the extremely low yields currently offered by bonds. Most wealthy investors are concerned about controlling their equity market risk. Bonds are the traditional tool, but yields are so low that expected returns may be unattractive. Because we largely offset long positions with short positions, our net market risk is quite low. The result is a volatility level akin to a bond portfolio. Because our target return level is quite a bit higher than what can be expected from bonds, many investors view our Global Macro Portfolio as a bond substitute.

How do you achieve alpha?

We define alpha as return not explained by risk exposures, such as stock market risk or interest rate risk. We begin by carefully measuring and controlling risks using a proprietary risk model specifically developed for the ETFs and CEFs in which we invest.

Using this risk model, we distill a security’s monthly historical total returns into risk-related return and residual return. Our focus is on explaining past residual returns (returns not due to risk) and forecasting residual return over the next month. We use fundamental factors to do this. These factors can be grouped into three categories:

• value
• momentum
• quality

Our methodology involves carefully measuring the trailing intermediate- and long-term “payoffs” to these fundamental factors using multiple regression analysis and forecasting their payoffs over the next month. Essentially, we are assuming that the factors that have been adding value will continue to do so.

What is your unique investment edge?

• Breadth and flexibility: 1000 different asset classes, countries, currencies, sectors, industries, bond segments, and investment factors--much broader than what is available in the futures market.

• Small AUM: facilitates investments in less liquid positions when necessary and helps keep trading costs low when we do trade.

• Quantitative investment expertise: risk and return models developed over a 30-year career in institutional money management, including the management of a five-star long/short mutual fund.

Kevin Means of Sapient Investments

Kevin Means is the Founder and Chief Investment Officer of Sapient Investments. The firm is built upon Mr. Means’ experience and expertise in portfolio management, quantitative modeling, risk management, and asset allocation. As a former long/short equity hedge fund manager, five-star mutual fund manager, chief investment officer, asset allocation strategist, and director of quantitative research, Mr. Means’ background is ideally suited for managing go-anywhere, absolute return portfolios.
Mr. Means has been the CIO of several investment firms including Invesco, Aeltus (the Aetna investment subsidiary), and Alpha Equity Management, a hedge fund firm he founded and sold to a bank. He has developed quantitative models, overseen tactical asset allocation, and managed portfolios in a wide variety of asset classes.

Mr. Means has a BA in Economics from The College of William and Mary, an MA in Theology from Fuller Theological Seminary, and an MBA from the University of Virginia. He is a Chartered Financial Analyst. Contact Kevin: Kevin@SapientInv.com