Kimberly Gallant, Global Head of QIS Structuring, CIBC

Kimberly Gallant (0:00)

Cary is a great place to start, and let's first define what Cary is, which I think most folks know. But Cary at its simplest is getting paid to hold a risk that somebody else needs you to take off their hands. It's the insurance premium of financial markets, and like insurance, it works until it doesn't.

One of the first questions to ask is, is it structural? Why is it structural?

Is this noise that you're seeing, is there premium? And there's an important balance here between backtesting process and setting out your hypothesis. And the order of that matters a lot. If backtest comes first, you tend to find that outcomes are less favorable. So some examples of carry, one that is surely near and dear to your heart, which we've already touched on, is the volatility carry trade.

Dean Curnutt (0:49)

Hello, this is Dean Curnutt, and welcome to The Alpha Exchange, where we explore topics in financial markets associated with managing risk, generating return, and the deployment of capital in the alternative investment industry.

My guest today on The Alpha Exchange is Kimberly Gallant. She is the global head of QIS Structuring at CIBC. Kimberly, it's great to welcome you to the podcast today.

Kimberly Gallant (1:19)

Thank you, Dean. I'm really excited to be here.

Dean Curnutt (1:21)

I'm really looking forward to this conversation around the product set that has just been a big growth area on the street. And it's been a big growth area because the client base has been increasingly consuming products through quantitative investment strategy. So we're going to learn a lot about this through you. First, get us underway with a little bit of your own career history, how you got into this very esoteric world on the sell side.

Kimberly Gallant (1:47)

Sure, absolutely. As you said, some global head of QIS here at CIBC.

I've been here about six months. The SEEDS grade for me, it's actually combined sales and structuring, which means that we're able to actually make sure the clients are really at the center of everything we're doing. Prior to this, I basically grew up at JP Morgan. I started at JP Morgan as an intern. I was there for the next 18 years, starting full-time in the institutional commodity business when we were building that out. So index was a big part of that. And then I spent most of my career at JP Morgan within the structuring franchise. Primarily focused on QIS, but dabbling in some other fun areas there.

I landed at JP Morgan and I landed in that seat because I actually studied at the M&T program at the University of Pennsylvania. I got the opportunity to study engineering and finance and entrepreneurship. And that's really the perfect combination of threads to lead someone into the QIS space. And it's actually that passion for entrepreneurship that led me to take on this opportunity to get to lead the CIBC platform to the next level.

Dean Curnutt (2:53)

QIS is Quantitative Investment Strategies, as I alluded to.

Give us the big picture of what this product is. It obviously embeds complex exposures and derivatives, but frame it all out for us from a 30,000 feet level to start.

Kimberly Gallant (3:11)

Sure. Maybe we can start with where it came from, because I think understanding how and why this came about can really better describe than it's a set of rules that you can trade in spot format, which doesn't tell you much that's interesting. So what's fascinating about QIS is that it isn't just one origin story. I was actually reminded this spring when my daughter's first grade, New York City Public School class did a unit on the Cinderella story. And so what's fascinating about that is that there were many versions of that story that came throughout history from different parts of the world. And my reaction was, wow, this is QIS. QIS was born obviously from the academic literature, the work of folks like Fama and French. It has its origin obviously in CTAs, in pension funds trying to rethink how to approach their risk models and their asset allocation. Part of the story comes from post-GFC and the implementation of Volcker, and all of the prop trading desks, the banks had great IP and they didn't know how to deploy that in a world where they couldn't implement it on their own. And their sales partners came to them and said, let's package it and sell it to our clients.

And part of that story comes from the commodity space, the commodity index space where I started my career. What's really valuable about this though, is that when all of these traditions converge together, at some point in the 2010s, the walls came down and folks realized that they were all trying to solve the same problem in different forums.