54: Professor Deep Kapur – Crises, Machine Learning and Lehmans

[i3] Institutional Investment Podcast

Professor Deep Kapur is Director at the Monash Centre for Financial Studies in Melbourne, Australia. He is also a member of the investment committee of pension fund REST. Professor Kapur has had a varied career, spanning asset consulting, investment banking and academia. In this podcast, we speak about the lessons learned from the various crises since the 1980s, his experience running a machine learning-based FX strategy in the 90s and the current application of these techniques in pension funds. He also explains why Lehman Brother should never have been allowed to fail. Please enjoy the show! Overview of Podcast with Deep Kapur: 01:00 Starting out as a finance journalist in Bombay 04:00 Interviewing Ratan Tata. 05:30 Working across the Bombay Stock Exchange 07:30 Moving to Salomon Brothers 09:30 Every response to a [new] crisis is different 10:30 “When a systemically important bank goes down, then capitalism can’t function” 12:00 Letting Lehman Brothers fail was a complete mistake 14:00 In academia, the pendulum has swung too far away from the real world 15:00 Impact of pandemic on the university 17:42 Impact of the pandemic on markets 20:00 Last year has brought to the fore that risk management can not be a second class citizen. 20:30 You have been involved in machine learning for a long time. What is different today compared to when you started out in this field? 23:00 If machine learning deals with a lot of short term data, does a long term investor have any business applying these techniques? 25:00 “You might not want to run machine learning strategies, but you could use it as a research assistant”. 27:00 How to build safeguards around systems that recognise patterns that humans can’t see. 30:30 “You can’t back test the future” (good for preview) 30:50 “The use of AI to assist decision making will explode, [but] machine learning where the computer makes the decisions and implements everything… I don’t think it will take over the world.” 32:00 What areas does the Monash Centre for Financial Studies focus on? 33:30 Blockchain and its applications. 36:00 Why would an institution be interested in a crypto? You would have to buy the story. 37:40 I think [Bitcoin] is a good hedge against the risk of paper money debasement. 39:45 I’m overseeing the launch of a venture capital accelerator and our faculty and students would be available to provide assistance to these early stage companies.