MIB: Antti Ilmanen, Co-Head, Portfolio Solutions, AQR

This week, we speak to Antti Ilmanen, head and global co-head of AQR Capital Management’s portfolio solutions group. Graham and Dodd Prize for his research in markets and valuation, Harry M. Markowitz has won numerous accolades and recognitions, including the Special Distinction Award, multiple Bernstein Fabozzi/Jacobs Levy Awards for his articles, and the CFA Institute’s 2017 Leadership in Global Investments Award. His recent book “Investing in low expected returns: making the most when the market offers the least

He explains how valuations are a key driver of expected returns: when stocks or bonds are expensive, they effectively “drag forward” returns for future years. It takes a long time for low incomes to make up for it. He adds that the value premium is cheaper than the rest of the market.

While he was writing the book in 2021, Ilmanen warned of an “upcoming investment winter” that seems prescient in light of the first half of 2022. He believes the Fed will do more to control inflation. He expects some more pain in the coming months, but his valuation analysis suggests we are closer to the end of the bear market than the beginning. He also believes that savings excess puts a cap on yields, even with the Fed rating rates aggressively. Regardless, he believes valuations will determine future returns far more than other metrics.

We also discuss how investors often confuse economic growth with expected market returns; As an example, since the 1990s, China has experienced a huge economic expansion, while Chinese investors have seen essentially no gains over the same period.

Here is a list of his favorite books; A transcript of our conversation on Tuesday is available here.

You can stream and download our entire conversation with podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All our previous podcasts on your favorite podcast host can be found here.

Be sure to check out our Masters in Business next week with Graham Weaver, founder and partner at Alpine Investors, a private equity firm in San Francisco investing in software and services and managing nearly $8 billion. Weaver holds an MBA from Stanford GSB and a BS in Engineering from Princeton. He started Alpine in his dorm room at Stanford’s Graduate School of Business, where he is now a lecturer, teaching both management and entrepreneurship.

Book written by Aunty Ilmanen

Investing in low expected returns: making the most when the market offers the least By Antti Ilmanen

Expected Returns: An Investor’s Guide to Harvesting Market Rewards By Antti Ilmanen

Aunt Ilmanen’s favorite book

Three-body problem By Xixin Liu

The wolf became By Hilary Mantle

The strangest people in the world By Joseph Heinrich

The Price of Peace: Money, Democracy and the Life of John Maynard Keynes By Zachary Carter

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