Axioma is a firm that provides factor-based risk models and portfolio construction tools for equity investors.
1 Founding and Early History,
2 Portfolio Optimization and Risk Models,
3 Russell-Axioma Indices,
4 The 2010s
5 External links,
Founding and Early History:
Axioma is headquartered in New York City, and was founded by Associate Professor of Decision Risk and Operations Sebastián Ceria of the Columbia Business School in 1998. The company was founded in order for Ceria to tap into the growing trend of computer software being used in supply-chain management logistics, bringing that methodology into the financial sector under the name Dash Optimization Holdings. Dash Optimization would later change its name to Axioma. The company's first client was Goldman Sachs, and since then they have accrued a client base composed of large asset managers and investment banks.
Portfolio Optimization and Risk Models:
The company produces software and tools, including the Portfolio Optimizer, which enables portfolio managers to manage their current holdings. This includes managing "intended" and the "unintended" bets taken in any portfolio--the things that fund managers see, and the things they have overlooked in terms of risk management. The optimizer is also used to manage the amount of trading and transaction costs associated with portfolio rebalancing, and to manage the trade-off between the return and risk performance of the portfolio. Axioma's Robust Risk Models include both fundamental factor risk models, which use factors such as industry, value, leverage, growth and momentum, and statistical factor risk models, which use statistical factors. All of the models are updated daily, and can be used to build portfolios from the ground up, in addition to providing analytical results after the fact.
Axioma's optimization software combines linear, quadratic and second-order cone algorithms. Portfolio managers can manage the number of names held or traded using integer constraints, as well as continuous data signals. Branch-and-bound methods are used to deal with combinatorial restrictions. Robust optimization allows portfolio managers to introduce estimation error into the results. Axoma's software allows managers to control market impact, transaction costs, tax implications, sector and industry bets, minimum/maximum holdings, and other portfolio elements. Axioma's products are used by five out of the ten largest asset management firms. Additional tools offered by Axioma include the Axioma Performance Attribution and the Axioma Backtester.
In 2008 Axioma started a joint venture with Russell Investments, producing a set of factor indices, a venture triggered by the growing use of factor models in the financial industry and concern about high risk management. The use of these factors in reading the markets has varied, as well as compounded, over the years. These indices include the Russell-Axioma U.S. Small Cap Low Volatility Index, the Russell-Axioma Developed ex-U.S. Large Cap Low Volatility Index, and the Russell-Axioma U.S. Large Cap Low Volatility Index.
In 2010 their models showed that asset-asset correlations were at an all time high, and that this trend would continue well into the future due to risk aversion in the marketplace. CEO Sebastián Ceria stated in 2011 that due to market volatility, market gains were based more on world events than individual news from businesses, creating a climate where factors were becoming increasingly important to determining value in the markets.
In 2012, Axioma released several white papers on the effects of lumping low-volatility stocks together in ETFs, showing how higher volatility can follow such practices, warning that greater diligence would be needed in vetting financial products like factor-based ETFs. Ceria stated that, other than looking at macro-factors, the risk factors that needed to be addressed in order to avoid such pitfalls on the non-macro-level included the momentum of stock, the size of the company, value growth or leverage, and volatility. This led Axioma to publicly advocate volatility-tracking ETFs versus their competitors, like the Russell 1000 Low Volatility ETF.
Axioma's staff is a combination of financial sector employees and software developers. Sebastián Ceria is the current CEO of Axioma. Axioma's Managing Director of Europe and Asia is Olivier D'Assier, former VP of Barra, Inc. for Asia Pacific and president of Barra Japan. These executives have been guests on financial news channels to discuss risk management, including Bloomberg Television,CNBC, and Fox Business. Ceria has also published the work of Axioma in refereed publications, including a chapter in The Oxford Handbook of Quantitative Asset Management. Other executives that have published research done by Axioma include vice president and Chief Technology Officer Stefan Schmieta, former member of the Computational Optimization Research Center at Columbia University; vice president of research Robert Stubbs; Director of Applied Research Anthony Renshaw, former Associate Professor of Mechanical Engineering at Columbia University, and Senior Research Associate Dieter Vandenbussche, former Assistant Professor at the University of Illinois at Urbana-Champaign. The current Chairman of Axioma is William Guttman, who also serves as a Special Advisor to the Provost of Carnegie Mellon University and was cofounder of the education technology firm Panopto.