Featured Profile: Toby Warburton
An investment experiment
State Street Global Advisors head of active quantitative equities in Asia Pacific, Toby Warburton, says there's a point where science and investment connect. Karren Vergara writes.

Investment managers with a PhD in laser physics are few and far between.

After earning a science degree and then spending the next four years researching and developing miniature laser devices in his native UK, State Street Global Advisors head of active quantitative equities in Asia Pacific, Toby Warburton, proves that no experience or knowledge goes to waste.

Investing is more psychology than physics.
For as long as he can remember, physics was Warburton's greatest childhood interest and a scientific mindset led him to the University of Southampton's Optoelectronics Research Centre, one of the pioneers in optical fibre lasers commonly used in telecommunications and satellite communication.

But like many of us, Warburton didn't have a perfectly mapped out career after university. At the bookend of earning his doctorate, the love of science fell short of a foreseeable long-term career path - and during that time, his curiosity about the financial sector grew.

In order to keep abreast of the industry Warburton read and was self-taught in economic and financial concepts. He then decided to apply for a contract role at asset management firm Barclays Global Investors (BGI) in London and was offered a three-month stint working in an area he described as something "totally unrelated to what I had done before."

A short-term standalone project role in BGI's active equity department soon stretched into other opportunities that exposed him to different sections of the business doing odd jobs in marketing, investment writing, and responding to clients' and investment consultants' requests.

"The benefit of having that broad view is that very quickly, I narrowed in my head the areas I really wanted to work in, specifically the quantitative active equity team," Warburton says.

"One of the real reasons for this is the approach they took, which was more a scientific approach or scientific method into the investigative space. It was appealing to me because it re-joined my two passions - science and finance."

What he's come to realise in his 20-plus years in finance is that the investment world is not a hard science in the way physics is. There are no universal theories that can be hypothesised, tested and proved experimentally; there are no right or wrong answers, but investment managers can still adopt a scientific approach - and he says philosophically this is where the two fields intersect.

"Investing is more psychology than physics. When you think about the makeup of markets and the agents within the markets -they're people and people have their own idiosyncrasies and irrationalities," Warburton says.

"We all have our own behavioural traits and these can create inefficiencies in markets, which then creates opportunities for active managers."

The link between his work and academic career is ever-present.

"What we're doing in SSGA is applying scientific rigour or in our investment decision-making process, and taking advantage of these opportunities, but at the same time trying to limit our own behavioural biases in the process," Warburton says.

After 11 years working at BGI, he wanted a firm that had "a similar way of go-ing about business" - which is what he found at SSGA and spent the next eight years there as a senior portfolio manager.

Warburton met his Australian wife while they were both working in London, and five years ago, the family decided it was an opportune time to move to Sydney.

Early this year he took on the role of head of active quantitative equities (AQE) in Asia-Pacific, replacing Olivia Engel who became deputy chief investment officer of global AQE, and is now based in Boston.

Warburton is the lead portfolio manager of the $281.1 million SSGA Australian Equity Fund, which aims to outperform the S&P/ASX 300 Index. Since its inception in 2009, the fund has generated 11.9% per annum gross return compared to the benchmark's 7.4% return.

Even with the promotion, Warburton said a lot of the expectations in his new role haven't changed greatly as his key focus is still delivering the best investment outcomes for investors.

But what he is really looking forward to is broadening his relationship with existing and new clients, understanding their investment needs; developing and building the Sydney team and fostering solid relationships with the global AQE team, which Warburton described as a group that has grown together and become more cohesive despite their geographic positioning.

What worries him however, is what some investors are thinking - disregarding pertinent risks in the economy.

"I think that equity market valuations are high at the moment and investors are really positioned for 'nothing but the best outcome.' The global economy is improving [and it's] heading in the right trajectory, but I don't think we should ignore or discount the risks on the way," Warburton says.

Some short to medium-term potential stumbling blocks or risks to be mindful of include: the upcoming elections in France, Germany and Italy; the new US administration's ability to execute on strategies such as the possible introduction of trade protectionism; and rising tensions coming out of China.

One thing he is proud to be a part of is the company becoming increasingly vocal about environmental, social and governance issues internally, and with the companies they are engaged in.

To prove point, SSGA most recently placed a bronze statue of a little girl in front of New York City's famed charging bull on Wall Street in an effort to push for greater board diversity and in the spirit of International Women's Day.

SSGA backed this statement up by writing some 3500 letters to the companies it invests in globally advocating this change.

"As one of the largest global investors, this is something that is really important for us to do and I'm really pleased we're making more of a stand on these issues and will continue to do so."

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