When the odds are in the investor’s favour

What if one of the greatest innovations in modern investing was not about predicting the future more accurately, but about improving the odds of success?

One assumption has long been deeply embedded in the investment world: achieving higher returns requires taking on greater risk.

For decades, the financial industry has built its products, models and theories around that principle. Yet, in recent years, the emergence of illiquid alternative assets as portfolio diversifiers has begun to challenge this view, offering investors the potential to improve the risk-return trade-off.

However, there are other tools capable of achieving the same objective in a more flexible, efficient and predictable way, while also offering daily liquidity. Surprisingly, they remain largely unfamiliar within traditional private banking.

These tools have been used for years by many of the world’s largest pension funds, hedge funds and investment banks.

I am referring to the world of quantitative investment strategies: rule-based investment systems, typically implemented through derivative instruments and offered by leading investment banks in index format.

Across financial markets, there is a broad range of Quantitative Investment Strategies (QIS) designed to exploit statistical inefficiencies, behavioural anomalies and persistent risk premia. Their objective is not to predict the future, but to identify market inefficiencies and systematically exploit them to generate returns.

Imagine walking into a casino knowing that the probability of the roulette wheel landing on black is not 50%, but 60%. You would not win every spin. There would still be losses and periods of poor performance. But over the medium to long term, the odds would be in your favour.

That is precisely the essence of many quantitative strategies: identifying situations where the odds consistently favour the investor and exploiting them with discipline.

For many years, these types of strategies were beyond the reach of traditional private banking due to operational, regulatory and market-access barriers that made them difficult to incorporate into client portfolios. That is now beginning to change.

Following extensive research and a rigorous selection process, at Creand Wealth Management we have gained access to an exceptionally broad investment universe and made it available to our clients through structures that are fully compatible with traditional advisory and discretionary portfolio management services. The objective is straightforward: to integrate these capabilities into portfolios in order to improve their overall efficiency.

The combination of traditional wealth management and quantitative investment strategies makes it possible to develop solutions that can enhance expected returns, reduce volatility and mitigate downside risk during periods of market stress.

These strategies can be implemented through both traditional structures, such as notes, and more innovative instruments, such as call warrants. For many investors, a call option is simply a directional bet. But there is another way of looking at it: as a tool for reshaping the risk-return profile of a portfolio in an asymmetric way.

To put it another way, and returning to the concept of probabilities, if an at-the-money option on an equity index has an implied probability of around 50% of paying out at maturity, we believe the warrants we incorporate into portfolios have an implied probability closer to 80%. This not only fundamentally changes the risk-return profile, but also gives us far greater flexibility when constructing portfolios.

The pursuit of asymmetry is perhaps one of the defining characteristics of modern investing, even if much of the market has yet to recognise its potential.

By combining quantitative expertise, probabilistic analysis and investment management experience, it is possible to build portfolios that are more resilient and better able to adapt to changing market conditions.

Many readers may believe that achieving higher returns while taking on less risk is simply not possible. While that is a perfectly reasonable assumption, QIS challenge the traditional relationship between risk and return and open up a new world of possibilities.

The integration of traditional wealth management, quantitative strategies and optionality represents one of the most significant developments that private banking is likely to experience over the coming decade. We therefore need to continue researching, developing and refining these tools with a clear objective: to enhance the return potential of our clients’ portfolios while simultaneously reducing the level of risk they assume.

Because investing has never been about predicting the future, but rather about making decisions amid uncertainty. The difference today is that we now have access to tools capable of tilting the odds in our favour in ways that, until very recently, were available only to a select few.

Funds People, 07.09.26