Antti Ilmanen, PhD, emphasizes the impor-
tance of diversification—including the use of
market-neutral investment strategies—and
warns against portfolios that tie up too much
risk in equities. He is a principal at AQR
Capital Management, where he manages
the Portfolio Solutions Group, which advises
institutional investors and sovereign wealth
funds, and develops the firm’s broad invest-
ment ideas. Previously he was a senior portfolio manager at
Brevan Howard, a macro hedge fund, and served in a variety of
roles at Salomon Brothers/Citigroup. He began his career as a
central bank portfolio manager in Finland. Dr. Ilmanen earned
MSc degrees in economics and law from the University of Helsinki
and a PhD in finance from the University of Chicago. Over the years,
he has advised many institutional investors, including Norway’s
Government Pension Fund Global and the Government of Singapore
Investment Corporation. He has published extensively in finance
and investment journals; he received a Graham and Dodd Award
of Excellence in 1998 and Bernstein Fabozzi/Jacobs Levy awards
in 2013, one for Best Article and another for Outstanding Article.
His 2011 book Expected Returns is a broad synthesis of the central
issue in investing.
In July 2016, Antti Ilmanen spoke with members of the Journal
of Investment Consulting Editorial Advisory Board about the
advantages of making the equity portion of most investor portfolios
less dominant, particularly in today’s environment of low expected
returns. Taking part in the discussion were Margaret M. Towle, PhD,
editor-in-chief of the Journal; Edward Baker, The Cambridge Strategy;
Geoffrey Gerber, PhD, T WIN Capital Management; and Mark
Anson, PhD, Commonfund. This interview is the eighteenth in the
Journal’s Masters Series, which is devoted to topical discussions with
experts and visionaries in finance, economics, and investments.
Margaret Towle: Antti, thank you for participating in our Master’s
interview. You have been involved in many innovative endeavors
throughout the course of your career. What factors helped to shape
your career and bring you to where you are today?
Antti Ilmanen: Luck and effort—luck in getting into the University
of Chicago for my PhD; I’m forever grateful to Ken French for
1 And, later, the second piece of luck, at a relatively advanced
age, joining AQR, where I keep learning and pushing the envelope.
2 It’s a luxury to have such great belief alignment. Maybe that’s
because some of the senior people at AQR were my fellow students
in Chicago. Then regarding effort—spending three years writing
and sharing some ideas through my book Expected Returns. That
was time well spent.
Margaret Towle: Please tell us about lessons learned during the
years you’ve been engaged in this work.
Antti Ilmanen: I would emphasize humility and diversification.
The markets always teach you humility. Ken French told me long
ago that it’s better to be lucky than good. So the ex-post outcomes
often trump ex-ante returns—partly because in investing, even at
best, we play with small edges. Diversification allows the conversion of many small edges into a big edge, and that to me is central.
Margaret Towle: When you look back on your career, what do you
regard as your major achievement?
Antti Ilmanen: I am most proud of my book Expected Returns. It
beats my PhD dissertation, because I decided to synthesize and
share my twenty years of reading as well as some of my own experiences on an ambitiously broad topic, and the effort seems to have
had some impact on investors. Of course, it’s been several years
since the book was published, and my thinking has continued to
evolve, so I have new ideas beyond those described in the book.
Margaret Towle: In contrast, what do you consider your greatest
Antti Ilmanen: Overall I’ve been pretty lucky, so the best I can
do here is to share one of my biggest scares. When I finished writing the book, I was still at Brevan Howard, a macro hedge fund.
I had submitted the manuscript to the publisher, and then I
received the foreword written by Cliff Asness. I knew Cliff liked
going for shock value, so I opened the document with some
ANTTI S. ILMANEN, PhD
Smart Investing in an Environment of
Low Expected Returns
Antti S. Ilmanen, PhD