Eric Sorensen - How Quant Evolves

**Patrick O'Shaughnessy** (0:04)
Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_1** (0:24)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (0:47)
My guest this week is Eric Sorensen, the CEO of Panagora Asset Management, which manages more than $46 billion for clients across a variety of strategies.
Eric began his career serving in the Air Force as both a pilot and instructor in high performance jet aircraft. He then accumulated 40 years of quantitative research and investment experience with a Ph.D. along the way. Please enjoy our conversation on the changing landscape of quantitative investment strategies.
I thought we'd start all the way back. You have a unique background and that you spent some time in the Air Force. And one of my all time favorite books is a book about John Boyd and sort of the OODA loop and all the interesting things that he learned and I know you were an instructor in the Air Force for a while. And I would love to use that just a brief story of your time there and sort of the foundational lessons that created the springboard for the rest of your career from the Air Force.

**Eric Sorensen** (1:37)
I appreciate that.
I was in the Air Force in part because of the environment. There was something called the Vietnam War and I was an undergrad in college at the University of Oregon and I joined ROTC and my father had been a military officer in the Army in the Second World War and we had a kind of a proclivity for serving. So I went to pilot training and that's a one-year program and became then soon after an instructor pilot in a high-performance jet airplane.

**Patrick O'Shaughnessy** (2:02)
So tell me about what kind of planes you flew and maybe the early days of the instructor. I'm especially interested in that stage.

**Eric Sorensen** (2:09)
Well, thank you. I flew an airplane that used to train, advanced training for people that are getting their pilot's degree in the United States Air Force, their wings, and it's the third plane that they would have been in, and it's the last one before they get commissioned as a pilot.
It's called an F-5 or T-38. It's a fantastic airplane. Northrop built it, still in use. The one we flew carried 4,000 pounds of fuel, and when it didn't have fuel, it weighed 8,000 pounds. It's just a rocket. No lift, just a rocket. Of course, supersonic and high-performance. And the thing about an aircraft that is somewhat similar to the business where you and I are in today, it's a machine with limits, rules, great performance, but you can overextend it.
But it's also operated by human. So there's nothing like being in a high-performance aircraft and pulling 5G's with your right hand on the control stick and your left hand on the throttles and being forced down in that seat and just that feeling.
And I don't think the machine could do that by itself. So I've often thought about what we do now. It's a combination of intelligence, human intelligence, decision-making, thought process, instinct, emotion, and using whatever the latest tools are to do that. And I really enjoyed that.

**Patrick O'Shaughnessy** (3:18)
It's an amazing analogy and maybe it's one we'll kind of return to through the conversation. I'm curious for new pilots that were operating this sort of high-performance machinery for the first time, how you taught them to transition. And there's an obvious analogy here, which is fundamental analysts that haven't used quantitative systems and maybe they should.
So what were the key steps in getting someone used to working with such a high-performance machine?

**Eric Sorensen** (3:38)
That's a very good question. First of all, these students who I call them students in quotes, they were like one year younger than me. I had been one a year earlier and then I was an instructor for about five years. They would come into our flight where I was an instructor pilot, and they had just finished training in another jet, which was subsonic and a very different aerodynamic characteristic. So this is a new experience. This thing is going 250 or 300 knots by the time you get the gear up and leaving. I mean, it's fast. It's got afterburners and so on. So the first couple of flights, they're a little nervous, but for an instructor and for their program, they have to go solo relatively soon in that aircraft, like after maybe six or seven sorties or missions.