How a Challenge Between a Quant Manager and a Texas Pension Shook Out A quant manager thought it could reduce trade execution costs for Teacher Retirement System of Texas. Alicia McElhaney December 12, 2019 How a Challenge Between a Quant Manager and a Texas Pension Shook Out The Teacher Retirement System of Texas revealed Thursday that it recently beat a quantitative investment manager in a trial to cut trading costs. The pension fund’s trading team was given the chance to benchmark its execution capability against one of its external quant managers, according to its investment meeting book released Thursday. The unnamed quant manager, with a “best in class execution arm,” estimated it could reduce the Texas pension’s execution costs by at least four basis points over a six-month trial period. The quant manager failed. “Over the six-month trial period TRS Trading significantly outperformed the external quant firm by minimizing trading costs,” the retirement fund said in the meeting book. A spokesperson for the Teacher Retirement System of Texas declined to provide the name of the quant manager. He said in an email that the six-month trial ended May 6. The retirement fund and the quant manager executed a total 13,816 trades over that period, the meeting book shows. The trades were tested across three categories: the external quant firm, the TRS systematic trading group, and the TRS discretionary group. Value Creation in Direct Private Equity[/paste:font] The external quant firm’s trading costs were 18.7 basis points, or about $7.3 million over the six-month period, according the pension’s meeting book. The discretionary group’s costs were 13.2 basis points, or about $5 million, and the systematic group’s costs were 7.9 basis points, or about $3.2 million. The pension fund’s meeting book shows that in the year through September, quant managers represented $105.4 billion of its trading activity by strategy, or about 42 percent of the total $252 billion. [II Deep Dive: Leadership Is Changing at Texas Teachers, Washington State Investment Board] The Teacher Retirement System of Texas is in the midst of a transition in terms of investment management. A person familiar with the matter toldInstitutional Investorin late November that its chief investment officer, Jerry Albright, planned to step down. Albright was the replacement for Britt Harris,who left the retirement systemfor the University of Texas endowment in 2017. At the board meetings held Thursday and Friday, the board planned to discuss succession plans for Albright. https://www.institutionalinvestor.c...a Quant Manager and a Texas Pension Shook Out
I went to the source. The Trading Challenge information takes up exactly one page of a 128 page report. It is a self congratulatory pat on the back. There is no analysis of why their trading is so expensive. Let's look at one set of numbers (TRS Discretionary): 4,651 Trades 59,884,567 Shares $3,767,875,368 Value $4,986,329 Cost 13.2 Basis Point Cost Average 12,875 shares/trade Average cost per trade $1072.10 Average cost per share $.0833 Commissions and spread don't cost $.0833 per share. As the cost is not broken down it would appear that the market impact of each trade is the major part of the cost. This high trading cost means they need the stock in each trade to move more than $.1666 a share (0.264%) to break even.
Just curious, why are huge retirement systems doing quant type mega-trading? Should they not just be invested in some wide array of diversified stocks and bonds and basically let it ride, just rebalancing every so often or what not? Seems weird to me. Thanks!