Program Supports Emerging Managers

AI-integrated global equity manager pulls back the curtain on benefits from provincial initiative

Program Supports Emerging Managers

Initiating a new project that brings collaboration between many established financial institutions is a feat, even more when it has a positive impact on the ecosystem. This is what the Quebec Emerging Manager Program (QEMP) has been able to achieve since its inception more than five years ago.

The three main objectives of the program were to support the local emerging portfolio management scene, encourage the best practices in institutional asset management, and promote local managers competition with firms from everywhere around the globe.

At Evovest, we benefited from the program even before being selected. Our experience started by having an informal discussion to understand what’s needed to meet the institutional criterions to be a potential candidate and the best practices to adopt.

Few Elements

When we started our application process, we understood that we needed to develop a few elements.

One key differentiator is our investment process. We are an equity portfolio manager; we achieve a differentiated alpha source by combining investment expertise with artificial intelligence for global equity products. Our strategy acts as a diversification tool from classical smart beta exposure.

The first learning experience was communicating our investment process through teaching sessions, receiving comments, and clarifying many points. With the feedback, we were able to develop a narrative about the many aspects of machine learning. Most comments were about our low level of explicability about our stock selections even if we were able to explain the aggregate decisions of the models.

So last year, we developed an explainable AI (artificial intelligence) module that enables us to showcase the decision process for every prediction we make. It brings us to a new level of storytelling as we can explain why we sold a company prior to an earnings release date due to high volatility around the earnings announcement, and then why we bought it back due to its growth profile a week after. Being a new emerging portfolio manager, with an emerging technology, brings operational challenges as well. We can think of our work as being the problem architects and we use the machine to help us solving them. From a methodological perspective, we are trying to solve the same problems as an equity analyst ‒ which company will outperform its peers. This can be simplified by predicting a company’s excess returns.

Developing the proper technological infrastructure was key to our relationship with QEMP. We were able to piece together the main elements to develop an internal system and meet institutional standards. A lot of considerations were internally dis- cussed into why we should or should not rely on our own developed software or processes to meet specific requirements. The feedback from Innocap (a provider of customizable managed account solutions to meet specific institutional needs) was often a key factor in determining what we were comfortable with bringing in house while maintaining a tight budget.

A last key element is the continuous improvement the program counts on. This put our team in a growth mindset about what can we do better based on feedback on many topics. As signatories of the UNPRI, we have integrated an ESG (environmental, social, and governance) component to our investment process that doesn’t use self-reported ESG from companies to avoid any incidents of green washing from the self-reported data.

Importance Of Community

We grew with the program itself, from the application to the onboarding process. An important element we take away from the experience is the importance of our community. Having people come together to help each other is not essential, but the resulting positive impact makes us grateful that we can count on it.

A fund of funds structure, the QEMP grants emerging managers structured investment mandates and   offers a mentorship framework.

Unique in the world, this project   enables   institutional    investors to access alpha-diversifying investment strategies while investing locally. Within this context, Innocap ensures a rigorous institutional framework in terms of due diligence, risk management, and continuous monitoring of the program for QEMP investors.

Carl Dussault is the CEO of Evovest.