Jacobs Levy Equity Management, an independent firm founded in 1986, focuses exclusively on managing U.S. equity portfolios for institutional clients. Strategies offered by the firm include long equity, defensive equity, 130-30, market-neutral long-short, and hedge portfolios. Building on the pioneering research of founders Bruce Jacobs and Ken Levy, the firm has developed a unique, multidimensional, dynamic approach to investing that combines human insight and intuition, finance and behavioral theory, leading-edge quantitative and statistical methods, and 30 years of proprietary research. Jacobs Levy manages assets for a prestigious global roster of corporate defined benefit and defined contribution plans, public retirement systems, sub-advised funds, and endowments/foundations, many of which are Pensions & Investments’ “Top 200 Pension Funds/Sponsors.” Clients are served by a staff of about 55, one-half of whom are professionals dedicated to investment research, systems, and implementation.
Commitment to Innovative Equity Research
Prior to accepting assets in 1990, Bruce Jacobs and Ken Levy devoted over three years to researching market inefficiencies and analyzing the complex economic and behavioral factors underlying security returns. As part of this endeavor, they pioneered a proprietary process of “disentangling” return-predictor relationships. This process evaluates numerous proprietary factors simultaneously, separating each potential source of return from the background noise created by other factors and controlling for cross-contamination of effects. The resulting pure returns are additive and can be more predictive than the estimates from simple single-factor analyses. The revolutionary findings resulting from this research led to the development of a unique multidimensional, dynamic approach to investing. Refined by 30 years of research and experience, this approach allows for diversified portfolios across exposures to numerous potential opportunities, which can contribute to consistency of performance over time.
Jacobs and Levy began managing market-neutral long-short strategies in the 1990’s, and recognized that the full benefits are achieved only through an integrated optimization that considers long and short positions simultaneously. They later derived precise formulas for optimally equitizing an active long-short portfolio with benchmark exposure, laying the theoretical foundation for 130-30 long-short strategies. Jacobs and Levy have also introduced mean-variance-leverage optimization into portfolio theory and practice along with the concepts of investor leverage aversion and the unique risks of leverage.
The groundbreaking concepts that form the foundation of Jacobs and Levy’s investment philosophy and approach are articulated in numerous articles, which have received awards from the Financial Analysts Journal, Journal of Portfolio Management, and Journal of Investing. Many have become required reading for the CFA program and MBA courses.
Equity Management: The Art and Science of Modern Quantitative Investing, 2nd ed., published by McGraw-Hill, with a foreword by Nobel laureate Harry M. Markowitz, brings together 30 years of groundbreaking articles by Jacobs and Levy. It contains what Harry Markowitz has called their seminal work on disentangling and integrated long-short portfolios, as well as articles about the growing popularity of factor investing, 130-30 long-short portfolios, portfolio optimization with short sales, optimizing portfolios for leverage-averse investors, market fragility and financial crises, and simulating security markets. The first edition of the book, Equity Management: Quantitative Analysis for Stock Selection, was translated into Chinese by China Machine Press.
Jacobs and Levy are the editors of Market Neutral Strategies, published by Wiley. This book provides readers with insiders’ views of the implementation, risks, and benefits of long-short equity investing and other strategies.
How I Became a Quant: Insights from 25 of Wall Street’s Elite, also published by Wiley, profiles investment professionals at the forefront of the “quant revolution.” Jacobs and Levy contributed a chapter detailing the development of the firm and the Jacobs Levy investment philosophy.
Bruce Jacobs’s incisive analysis of modern capital ideas is evident in his critically acclaimed book, Capital Ideas and Market Realities, published by Blackwell. This work discusses the pitfalls of translating financial ideas into practice.
Jacobs Levy Equity Management was a founding sponsor of the Research Foundation of the CFA Institute and of the Fischer Black Memorial Foundation. In 1998, the firm founded the Bernstein Fabozzi/Jacobs Levy Awards, which annually recognize the best papers to appear in the Journal of Portfolio Management.
In 2011, in honor of the firm’s 25th anniversary, Jacobs and Levy founded the Jacobs Levy Equity Management Center for Quantitative Financial Research at The Wharton School and the Wharton-Jacobs Levy Prize for Quantitative Financial Innovation. The Jacobs Levy Equity Management Center for Quantitative Financial Research is dedicated to the advancement of quantitative finance through the creation and dissemination of innovative knowledge. The Center also grants the biennial Wharton-Jacobs Levy Prize for Quantitative Financial Innovation to recognize those who have published articles that demonstrate outstanding quantitative research that have contributed to an innovation in the practice of finance.