Using Decision Science in Investing: Masters in Business with Omar Aguilar

Barry Ritholtz (0:02)

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I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Omar Aguilar. He is president, CEO and chief investment officer of Schwab Asset Management. They run over a trillion dollars across a hundred different ETFs, mutual funds and separately managed account strategies. He also runs the Schwab Center for Financial Research, sits on the firm's executive council. He joined Schwab in 2011, specializing in equities and multi-asset strategy. Schwab's total assets are over 13 trillion dollars and its asset weighted expense ratio of eight basis points is amongst the lowest in the fund industry. I thought this conversation was fascinating and I think you will also, with no further ado, Schwab's Omar Aguilar.

Omar Aguilar, welcome to Bloomberg.

Omar Aguilar (1:16)

It's a pleasure to be here with you, Barry.

Barry Ritholtz (1:18)

It's a pleasure to have you. So I want to get into your career and some of your conversations about what's going on in the market today and what's happening at Schwab. But you have such a fascinating background. I have to start there.

Bachelors in Actuarial Science, then a Masters in Applied Statistics from the Institute of Technology in Mexico City. Then you come to the US and at Duke, you're a Fulbright Scholar, where you get both a Masters in Statistics and a PhD in Decision Sciences. Am I getting that right? It sounds like you were planning for a career in Academia.

Omar Aguilar (1:58)

It is true. And actually, I did in my last year in my PhD program, I did apply for a couple of academic jobs before I was lucky enough to basically get back to Wall Street as an analyst.

Barry Ritholtz (2:11)

Yeah, so your first gig is your, was it at Merrill Lynch?

Omar Aguilar (2:14)

Bankers Trust.

Barry Ritholtz (2:15)

Bankers Trust and then Merrill Lynch. You have this deep quant research background. What did you do when you were first starting at Bankers Trust and then Merrill Lynch?

Omar Aguilar (2:26)

Well, if you recall from what the degree that you mentioned, my dissertation and the work that I did was in how to use statistical models, now they're called data science, back then it was statistics, in terms of how you use those models for making decisions. The whole process of decision on their uncertainty was the whole research that I did.

We apply that in particular to areas like currencies, equity, asset allocation and I was hired at Bankers Trust to develop those models. So I call that the before any AI or anything else, they were just quantitative models that were able to help people being faster to understand how people make decisions.

Barry Ritholtz (3:16)

I don't remember if it was the PhD paper or the 2001 paper, but that it's still one of the most cited papers in quantitative research. How did you jump from Bankers Trust to Merrill Lynch? When did that transition happen?

Omar Aguilar (3:31)

Well, there was, you know, if you follow the path of my background, a lot of that is related to the activities on Wall Street because there were a series of mergers and events that happened that took me to where I am today.

You know, Bankers Trust was bought by Deutsche Bank and at that point, the group that I was part of was lifted out to join Merrill Lynch. Merrill Lynch Investment Management was starting to just build their institutional business and that's where we became really nice fit. Unfortunately, September 11 happened 25 years ago and then, you know, that basically took us to create the private bank asset management services for Lehman Brothers that wanted to branch out into the asset management business for their wealthy clients. And then from there, you know, it's starting to just get a little bit, you know, sensitive in terms of the Lehman business. So I had the opportunity to work with a former colleague of Bankers Trust, you know, at ING to basically rebuild their quantitative and systematic, you know, investment processes. So that was all related to activities that happened through the Wall Street, you know, acquisitions, events and so forth.

Barry Ritholtz (4:41)

And ING, now better known as VOYA, that was $20 billion across 15 strategies, including active index, enhanced index, pensions, variable annuities and mutual funds. Once you stand that up and get that to a reasonable side, was Lehman before that or after that?

Omar Aguilar (5:03)

That was before, that was before. You know, we were able to build a lot of these things at Lehman Brothers, so it goes back a lot of what my philosophy is, is you have to be in a place where you can marry distribution with manufacturing. That's what we believe asset management success relies on.