How Acadian Built Out a Systematic Credit Strategy
Scott Richardson, a veteran of AQR and BlackRock, has brought new expertise to a seasoned quantitative manager.
Last year, Acadian Asset Management tapped Scott Richardson, a veteran of BlackRock and AQR, to lead its entry into the credit market. Now the team is in place.
Richardson, who is the former co-head of fixed income at AQR, has helped the firm seed strategies, and meet the growing investor demand for active systematic credit. Richardson said he’s eager for what’s ahead for his new group.
“People-wise, we’re good,” Richardson said of his ten-person team. “The investment process is there.”
The $90 billion active investment manager had primarily played in equities for its 30 years in the market, but was looking to tap into the growing institutional appetite for credit strategies — and to use its quantitative expertise to differentiate itself from rivals.
The build-out appears well-timed, as allocators look to add fixed income, including systematic credit, to their portfolios amid rising interest rates and inflation. “Credit and fixed income in general over the past two years are back in vogue,” Richardson said.
Although Acadian has been running systematic investments for years, this strategy is the firm’s first foray into the credit markets. Last year, Acadian said the dramatic increase in electronic bond trading — which has increased the availability of public data — has made these strategies possible.
Tapping outside expertise was an intentional move by the firm. In addition to AQR, Richardson held senior positions at BlackRock and its predessecor firm Barclays Global Investors. But Richardson doesn’t just have practical experience in systematic credit, he’s also an academic. As a researcher, he’s found evidence that supports the idea that a premium exists as a result of credit risk.
At Acadian, he is purely focused on corporate bonds and their derivatives, such as credit default swaps. “It’s deliberately narrow in scope,” Richardson said. “That has a couple of benefits.”
The primary advantage, he said, is that he’s able to tap the massive historical trove of data that Acadian has already collected from its equity investment practice. In his view, being able to reuse that data learning, acquisition, and extraction for his credit models has been enormously useful. “We can be successful with far fewer resources,” he said.
Richardson noted that one way Acadian’s strategy stands out is its active approach to investing. He’s now using that in credit.
“It’s a challenging asset class to get high-quality beta exposure, whether it’s a total return swap or an ETF,” he said. “Sophisticated asset owners are aware of that, so they tend to allocate to active approaches. That’s where the business I’m building comes into play, because we have a different way to skin the cat.”
Acadian looks at a multitude of characteristics — including default rates, value sentiment, credit deterioration, and rating migration forecasts — and measures them to come up with a return forecast for a bond.
“I’m not limited on inputs to my expected return forecast due to a label,” Richardson said, noting that the type of “component” doesn’t matter. He prefers the word “component” to “factor” to differentiate the firm’s offering from factor investing. “If I can legally get access to data, we’ll test it. If it makes sense, we’ll use it in the investment process.”