How do you separate signal from noise in one of the world’s most dynamic financial landscapes?

Augusta Mirchandani (CEO & Founder, aaa global) interviews Rishi Kohli, CIO of JioBlackRock Mutual Fund, on modern investment philosophy.

From his early days in a middle-class Indian household to leading investment strategies at global giants, Rishi discusses why "gut feeling" is being replaced by systematic, quant-driven logic. Whether you are an institutional investor or just starting your financial journey, this episode offers a masterclass in balancing risk and reward and in the necessity of financial literacy.

Inside the Episode:

1. The Quant Revolution: Why systematic strategies are the key to enhancing risk-adjusted returns in India.
2. The Psychology of Risk: How personal upbringing and early career hurdles shape a CIO’s perspective on the market.
3. Evolution of the Indian Market: Navigating the unique challenges and massive opportunities in the current financial ecosystem.
4. Bridging the Education Gap: Why the industry must move beyond jargon to foster true investor literacy.
5. Adaptability: The art of staying systematic even when market conditions shift.

Timestamps:

00:04 - Introduction

04:26 - Transition To Systematic Trading In India

11:15 - Shifting Strategies: Lessons From Managed Futures

16:43 - The Importance Of Education In Investment Strategies

24:41 - Coping With Market Uncertainty

28:26 - Exploring Social Impact Through Investment

Key Quote:

"To manage risk effectively, you don't need a crystal ball; you need a systematic process that removes the emotion from the execution. Listen now and take your next step toward investment clarity and financial literacy."

Companies Mentioned:

#JioBlackRock #BlackRock #Citadel #MonsoonCapital #AAAGlobal #Investing #QuantTrading #IndianEconomy #RiskManagement

Foreign.

Welcome to another episode of Connect with Purpose. Today I'm flooring my Vishnu Kohli who is the CIO of JIO blackrock. Thank you so much for being here today.

Thanks for inviting me greatly here and

I think you're going to provide some really interesting insights. So let's get started.

Sure.

So I think the first thing that I'd love to understand is growing up in your early and in your early career, what shaped the way you think about risk and capital?

So growing up, you know, middle class, Indian family, so obviously focus on savings, not taking too much debt, being very conscious about where you spend.

So an automatic sort of, you know, understanding and appreciation for risk versus reward in some sense, you know, comes up which was important and interesting for the later part of my career. And then of course, you know, in the early part of the career in India especially even today, I think it's largely there.

So combining whatever I understood about money and the aspect of risk or spending the money where it's really required sort of tied into what I saw later and felt that the industry needs to appreciate the risk aspect more.

Interesting. And what shaped the way then you view your investment philosophy, Was that also tied to your upbringing or was that in your career?

Yeah, so that was more career. Honestly in, in the beginning of my career I thought I want to do investment banking.

And when the first six months the rotation across different areas of the investment bank was happening I realized no, that's not really what is exciting me. And equity markets, public markets do excite me.

And India was just, had just started the derivatives markets and luckily my firm was one of the initial movers in that space on the sell side. There wasn't much of a buy side there at that time really to derivatives and hedge funds.

And I did a little bit of very basic quant research or derivatives research I would say for them and they liked it. And so I moved into that division very quickly and post that it was shaped by whatever I saw on the floor at that time.

Okay, interesting. And your career spanned hedge funds, it spanned quant strategies, it spanned many aspects of the industry.

And now you're essentially leading Geo Blackrock in this space. So what was the turning point that you know, got you to this place where you are now?

Started with derivatives research, as I said, and then I went on to start and head some of the institutional equity derivative booking desks. And at that time, as I said, people were just talking about returns. And India was a long only market, from domestic investors to global investors.

And at that time all the best fund managers and everyone was like, oh, we don't know what happened. So that set me thinking since I was anywhere on the derivative side and the goal was to provide different types of solutions to all my clients.

The goal was that why don't we have certain strategies or models that do very well when markets crash? And that sort of started shaping the rest of the career.

Because then I was like, okay, you know, India has a long market first that was from the sell side that why not create short solutions or strategies which can do absolute returns everywhere.

But then that led to more deeper derivatives and quant research which led to my moving to the buy side with the thought that no one in India has done long short and hedge fund which are systematic and quant. And why not do that? Because it gives a much better risk reward outcome.

Okay, so the, so the, so the analysis on risk essentially has led you

to this far in different ways, I think.

Different ways, yes. Yeah. Okay, interesting. So were you one of the first people in long short in India?

I joined a firm called Monsoon Capital which was a small to mid sized hedge fund from the US Hedge fund, meaning more in structure name as per the structure, because otherwise it was a long only small cap fund for India.

And then the founder of that wanted to do long short strategies in India and Asia also potentially it was more like a startup thing where he liked some of my ideas, said you come on board, I have some prop money, test out strategies on that, and then as you figure out what you're better at and what you want to focus on, then we Launch some funds for you. So that is how I moved to the buy side. And at that time, of course, proper long short hedge funds were not really there.

So all hedge fund structures were there.

Similar to Monsoon Capital, there were some others where the money was raised globally in US or Europe or, or, or across the world and invested in India. But they were all long only strategies at max. People used to hedge a little bit or something, right. Just to bring the volatility down.

But pure long shot or, or even quant and systematic was not there. I started out initially testing out.

I wouldn't say fully systematic and quant strategies, but more trading strategies, more short term and again trying to make money on both sides of the market.

But I think in six months I and a very small team I had at that point in time we realized that we come up with very good ideas, but we're not natural, you know, discretionary traders. So making all the rules, systematic works much better for us. So that's how I moved to the systematic endpoint side.

And yes, on the systematic endpoint side, apart from longshot, I think, you know, I was one of the first guys. There were a couple of us, you know, within a few months of each other. We were just a handful of people who started out at that point.

And were there a lot of things you had to unlearn in that process of shifting?

Yeah, so even before that, honestly, even in the broking days. Right. I mean as a newcomer, you obviously look up to whoever is senior in the industry, is doing well in your firm outside in the industry, both.

And as I did, those interactions, obviously fundamental investing and long only investing was the main thing that everyone was doing and 90% holds even till today. But that time it was even more.

And then the whole focus on news, you know, watching it all the time and obviously as a youngster, you are also not sure what will help, what will not. So you're also tracking everything possible.

So that mix of fundamental plus news kind of thing, which everyone used to focus on too much, you know, in the first few years I realized that that's not as important as, you know, everyone makes it out to be. But there was no real learning or know, mentoring that I could take advantage of to sort of flesh out that thought process.

So it had to be on the job and I had to do it sort of myself while testing out various things. So yeah, that was a big unlearning sort of you had to do from whatever you were hearing all around you.

Interesting. What has been the hardest part of your Career.

I mean obviously you know, you've had an amazing career, but it often people, people look back and it looks perfect. But what was the hardest part?

Or what was maybe a sector in your career where people would assume it wasn't hard, but it was much more challenging than it looked.

But for a long period in Monsoon Capital we focused on what is globally called managed futures and systematic managed futures. And that came naturally to me and I was very passionate about it.

Again, sort of connected to what I said earlier, that some of these strategies do very well when markets crash while overall also making good absolute returns in the long run.

But then again, non correlation kind of statistics sound easy to some of us who are used to systematic quant talking about maths and stats and numbers. But what becomes difficult is to handle the investors expectations.

The fact that a strategy is non correlated to, let's say long only or other strategies that investors are invested in also means that it's much more difficult to explain when you are not doing okay compared to the other strategies. And that of course both in India and Asia, which are the know funds I ran, managed futures was not very well understood.

And I think even till today, I think it is much less appreciated compared to many other strategies.

And there, there was always a continuous struggle to explain to them that you know, even when you're flat and you know, markets have been very choppy, that's a great outcome because you know, you could easily have lost money.

And even when you're losing money, you know, as long as you're within the bounds of drawdowns, et cetera, it's fine because finally you're making those absolute returns in the long run and you're making money when markets are falling most of the time. And the second thing is obviously related to markets falling.

Once you say that the strategy is sort of taking advantage of tail events and doing well in those, the assumption investors have is that it will always do well in those events and it will not always perform. It depends on the pace and shape of the fall, let's say. Which again is very hard to explain to a lay investor.

So I think there's a lot of that kind of stuff which had its ups and downs, you know, and even when initially I started the strategy, obviously everything looked good on paper. But when you go through those drawdowns, right, they can be very painful.

And more than the magnitude, I think the duration of drawdowns that is much less Appreciated. So even if your drawdowns are slightly lesser, but the duration extends, then you will feel the pain and the investors will feel the pain.

And then you are sort of tempted to change your systems and models, etc. And you may do that at the worst possible time.

So that thing, obviously in the first few years even I made some of those mistakes, but then very quickly learned that you have to stick to it. As long as you are convinced that your process is very robust, then you have to stick to it.

And you need to dumb it down to explain to the investors, to make sure that they understand, appreciate it and continue. So that was tough. And it still is.

I mean, it'll never be easy to explain non correlated strategies to people who are, you know, used to only long only kind of investing.

How do you manage investors when they might not understand these strategies that are actually very different to what they're used to investing in?

Yeah, so see, initially it was more numbers and talking about all these non correlations and diversification, etc.

Which on the page pace of it is fine, but people start losing interest very quickly, so really have to dumb it down and relate it to something that they would understand.

So one thing that I had started doing for managed futures specifically was that, you know, show them a 50, 50 sort of mix of long only and managed futures.

And I took Warren Buffett's track record and which, you know, everyone in India and the world appreciates and thinks, you know, is super, and picked up some unknown managed futures strategy, I'm forgetting which one I had taken.

But someone who had track record going back as far back as 30, 40 years, and then just combining both of them and saying that on the face of it, you may not find this very interesting, but when you combine, you're actually getting a much better outcome than what you would get from a Warren Buffett. You were better on returns, lower on risk. So both the sides, you know, it was like magic, right, for people.

Because otherwise the assumption is that obviously you can't improve both, you can't improve returns and risk reward both, but you could by just doing that simple thing and things like that I think help because then it immediately attracts the attention and then people would focus on more granular numbers or statistics that you want to talk about.

So having a comparison point to someone they actually understand. Okay, you've been in the Indian markets a long time. What do you see changing in the next maybe five, ten years?

What do you think this, where do you think the big shifts are going to be?

So I Think, I mean, couple of smaller things and a couple of larger things, smaller to begin with is the stock lending borrowing mechanism in India, right?

So that is still very, very tiny and it's never taken off largely because obviously we've always had a very liquid single stock futures market, right?

So, for example, since I grew up, along with the markets in my career, so if there's a very liquid single stock futures market and I want to go and short, say Reliance or Infosys, right, well known names globally, so I'm picking those examples, then I would just go and do it in the futures market because it's three to four times liquid as more liquid than the underlying cash market for most of these stocks. And the operationally, you know, it is much, much easier, right? So I would just go and do that.

Therefore, I would never feel the need to go to the SLVM market.

And that's the difference from many global markets like the US for example, where you don't have a single stock futures market and therefore all the volumes and action is on the SLVM sort of market. So that's why it's not really taken off.

But having said that, you know, with the focus that SEBI and the government and exchanges have to deepen the cash market, I think one way to do that is through the, you know, strengthening the SLBM stock lending borrowing mechanism thing. And of course there are certain things in that operational process that are not similar to what people are used to globally.

So, you know, if some of those operational rules can be improved as per global standards, then I think there'll be a lot more global firms also who would participate in that, which would make it much more liquid and which would have an indirect impact of deepening the cash market as well. And deepening the cash market is a clear objective from regulator's side as well.

I think that should be interesting for the regulator, for the help of the Indian markets as well. And then of course, derivative markets obviously in India have taken off hugely.

Obviously data from regulators and government shows that a lot of retail loses money. So they've been trying to clamp down a little bit on that over the last one and a half years.

I think recently the comments that have come from the regulators and the chairman are that, you know, they understand that some of some more measures may be required, may not be required, but they look at the data very closely and then decide going forward. So I think that's the right approach now, going forward. Whatever may have happened, some pampering of it was required.

But yeah, I do think there were easier ways to do it.

But between regulators and exchanges, I think they have been talking about the simpler ways of tackling that issue, which I think would be very healthy in the long run.

And apart from that, my personal view is that you should let the market forces sort of play out because that's when the balancing factor plays out in the market. Let's say you have only long only players and you don't have too many tools to short or hedge.

Obviously it becomes an unsustainable and an unnatural market. So all sorts of things are required and derivatives are very important from that aspect.

From risk management and long short perspective also not just for speculation as sort of the negative aspect that is being highlighted right now.

And there of course some of the longer term options leaps and other developments can also help, which again I think was not much talked about or studied in the past. But now again from regulator side, exchange side, many market players have started thinking about it.

There will be certain rules and operational things that will need to be done to encourage that. But I think once everyone has started focusing on things like that, finally sooner or later it will happen.

So that will also be very healthy going forward. So some of these things I think can be very good for the Indian markets in the long run.

Positive outlook.

Yeah.

Okay. And if you were going to change anything in this industry, what would it be? If you wanted to disrupt the industry, what would you do?

So I think a lot more education is required.

So it's not really disruption in the true sense, but, but like the educational content that is put out right now again is, you know, more from a long only and a return sort of perspective, as I said earlier, a lot more around risk and position sizing and how different strategies diversify. You know, this whole thing about, I mean, not to downplay, you know, star fund managers and their performances.

Obviously you do need goes again for healthy markets and for investors to make money. But you know, there's so much talk about some of these things in the last 20 years that people think that is the only way to make money.

So I think more education around the fact that different types of strategies, including systematic quant for example, can really diversify whatever holdings you may have on the traditional fundamental discretionary side, even if it is with staff fund managers. Right. You like the example I gave earlier Buffett plus something else makes it much better.

Similarly here any, you know, pick your favorite star fund manager from the fundamental discretionary side, take a very simple systematic strategy and you'll see the outcome will Be better. Right. And if, let's say I or someone else is doing it better than average on the systematic side, then the outcome will be even more better.

So these sort of learnings, I think, need to go out to the market much more actively. And of course, the onus is on some of the asset managers like us who are focusing on that space and want to expand.

So we have started putting out some content, and the goal is to sort of be first movers and thought leaders and keep putting out more content in that space. So there, I would hope that the entire industry comes out with more such things and it'll help everyone.

Honestly, when the industry grows, it helps everybody. So it's not that the traditional fund managers will lose out to me or I will lose out to them. It'll just increase the whole pie for everybody.

Yeah.

So that I think maturity and understanding, as long as all the asset managers have, and as more content goes out on that front, I think that can be a huge game changer for all investors.

Do you put the onus on education, on the firms who have the.

All of us? And of course, you know, you do have the bodies like Amphi, which are already doing a good job as per whatever they understand.

But some of these newer things I think also need to be involved pretty soon.

And of course, the talk about risk, I spoke about risk multiple times, and as you summarized that, that has sort of shaped different aspects of my journey.

So even here, in fact, interestingly, Sebi last year themselves said that mutual funds should start putting out their IRS information ratios on their fact sheets, which was not happening earlier, which I think is very healthy. So things like that also will help a lot going forward. But again, Sebi said it. No one has really talked about it.

So as a retail investor, if someone looks at a fact sheet, he'll still probably ignore the ir, but then more content around why IR is important.

So again, regulator, Amphi, all us asset managers, we can all collectively do a much better job of that because again, it's not just return, it's not just you giving 16%, me giving 17% and me being better. You know, if my IRS are very poor despite that 17, then in the long run, you may not be better off investing in you.

Yeah.

So I think all that is much less understood. So there needs to be a big splash around all these things, I think.

Yeah. Education. Yeah. Okay. And what skill set do you think that people should be learning now?

If they are entering their career or midway through their career, they're going to go into investing the next 10 years.

Yeah. So I think on the systematic quant side is, you know, what my experience is.

So on that side, all the traditional things around math, stats and some financial engineering and various combinations of that, and obviously there are courses that you can do offline online. Both those things will be basic, those are definitely required.

But I think what has helped me a lot in my career, and as I said that, you know, I sort of grew with the derivatives market and with the hedge fund market being among the first movers in both the spaces. So there wasn't much, you know, you could learn from other colleagues or you couldn't really have mentors, etc.

So what really helped me was reading a lot, right?

Reading a lot of books that others had written in the space, a lot of working papers, articles that, you know, people were publishing, and that becomes a good, fast, steeper learning curve.

So I think apart from the educational aspect of it, you know, people do need to do a lot of this kind of reading because you get a lot of practitioner ideas as well and then sort of related to some learnings from academia. And then at the end of it, you need to apply some common sense, right? So that will never go out of fashion.

So I think common sense is always required, otherwise you can have an ltcl kind of disaster. Right? You have the best brains in the world, but I think when you're taking a 50s to one leverage, I think common sense was missing somewhere.

Obviously, however tightly hedged it May be, a 1 to 2% move could happen anytime. So that I think finally the more intellectual or intelligent someone gets, I think you start missing out some of the commonsensical stuff.

So that at all points in time, I think people are, I think, people

for kind of pattern. Is there a book you recommend for people to read? Is there one book that really stands out to you that you read?

So Fortune's formula is one. It talks about the Kelly criteria and all, but uses a lot of examples from nature to say why, you know, that is very interesting and important.

And I think that gives you a good perspective of risk reward and how that can help your capital grow better in the long run. So that comes immediately to mind.

And then of course, the man who solved the market on Jim Simons is something which everyone on the quant world would love to read just because of the amazing track record that he has, which is a sort of unbeatable, I would say. But of course it is not a hardcore quantitative book. It is more about episodes in his life, etc.

A little bit of it is around certain strategies or the way he used to think. But very exciting sort of quant novel, if you want to call it, I would say.

And then Ed Thorpe, I think people have read less and appreciated less about Ed Thorpe, but I would really call him the father of quant investing.

So I think people read about him, you know, simple books he's written, but more around his life as well because he wrote Beat the Market and Beat the Dealer and many people are not aware that, you know, a lot of the probability principles we now take very naturally to apply on the systematic and quant side is something that he first used in casinos and got banned from casinos because he was doing so well. So it makes for very interesting reading.

And one very less followed aspect is that actually Citadel, when it started, Ken Griffin actually took some, you know, learnings from him, from Ed Thorpe. And Ed Thorpe was sort of retiring, so he just gave him a lot of his learnings.

And which is why Citadel started with convertible arbitrage, because that's what Ed Thorp used to do, right?

He had a 20 year track record where he was positive every year just doing convertible arbitrage and had like a 20% annualized return while being sort of market neutral, which is like a crazy track record again. So that sort of thing, you know, that market history, I think has a lot to teach.

So the more people getting into the industry get up to speed on that, I think you'll have a very fast and steep learning curve.

How do you cope under extreme uncertainty? I mean, the markets are very difficult sometimes. How do you personally cope? How do you function in that state?

So I think being systematic and quant helps the most because you are still following your rules, right? So. And that of course over the years you've noticed that, you know, any kind of tail events and these things will happen, right?

There will be events that will come out of the blue once every few years. But being systematic, you know, if you're following the rules, then it's just another day kind of thing.

So that appreciation obviously has come in because I've been doing it for so long, but otherwise I think, yeah, for even other types of investors, I think it's just good to take a deep breath, go back to your building blocks, see that all of that is working fine from a risk management perspective, if something you need to do to step in as an exception, that even while being systematic. We appreciate that.

We say that from a risk management perspective, let's say currently the Iran war going on, the first thing I went and checked with my team over the weekend. Was that, okay, these sectors that will get impacted because of the crude spike, right. Are they hugely underweight or overweight in our portfolio?

And if they are not, they are very small, underweight, overweight, then it's fine, then let the model run. But if they were, then maybe we would tighten the bounds, tighten the constraints, do something around it very temporarily.

So there are rules around that as well. But we don't want it to become like every month some news will come and you treat it importantly and then you keep changing your model.

That obviously doesn't work. But once in a blue moon kind of event like this, definitely there needs to be a discussion again around risk.

And there you just go and see if it makes any logical sense. If not, let the model run.

And same way, I think on the discretionary, fundamental side also, people have their own ways of measuring risk and managing risk.

So I think from that angle people can just go and see, okay, under this uncertainty, there's something unusual that is happening that I need to step in. If not, then let the, whatever methodology you have play out.

Okay, interesting. Are there any habits you have or is there a routine you have that's kept you in this industry so long? It's a very stressful industry.

So is there anything that.

Yeah, so no work on Saturday, Sundays, on the weekend, very simple rule. And forget about markets as well. I am a bit unique, I think, where I actually don't watch like TV market news at all.

Whether it's during market hours or, you know, evening at home or on the weekend, I just don't switch it on. So I think that helps keep a lot of the noise out. So.

And that keeps you more patient and less stressful as well, because the more news and noise you keep reading about somewhere or the other, you'll keep feeling that, you know, this will affect my portfolio, this will affect whatever I'm going to do tomorrow, etc. So the less noise you have, and you are anyway going to stick to your model largely, so it doesn't help also listening to so much of it.

So that automatically brings your stress level down. And then finally, of course, on a lighter note, I was born and brought up in Calcutta, which is largest city on the eastern side of the country.

And there typically there's a reputation of the locals there of being very lazy and sort of taking an afternoon nap. So on the weekends, if I'm really not doing anything, then I do take an afternoon nap sometimes and it really helps energize you get this guys out.

Yeah, I like that. I like that. What would you say in your. Is your purpose with your work? You know, why are you doing this? What's your, what's your bigger purpose?

Yeah, so I think broad theme, I would say social impact. And that can obviously happen in various ways. Right. So you know about the quant association that I helped start for India.

So again that is more for the quant community, but again focused on, you know, younger people coming in, getting the right platform, meeting the right people, getting up to speed on some knowledge that can be shared for mid to senior level people. Also, you know, again, knowledge sharing and brainstorming is happening and then of course networking is happening.

So I think it helps the entire community. And that was started as a nonprofit because it was more about giving back and helping everyone in the community.

So that is one form of social impact more related to the industry. But even otherwise, I'm not a big fan of startup investing, given that I've been doing liquid markets all the time.

And the thought has always been that if in liquid market, while being liquid, like derivative markets and you know, even cash markets, largely we are focused on, you know, the larger stocks. So these are very liquid. So while being liquid, meaning that if I need the money, I can just unwind in a day or two days. Right.

And if you can make healthy returns, then why do you need to go into illiquid stuff? So that was always a thought process.

But then over time I've ended up doing some small investing in some of the startups and those have been all from a impact perspective. So things like breast cancer detection device company. So my mom passed away by breast cancer.

So then when I came across this interesting company, I said, okay, they're doing a great job and this can impact lots of people. So let's, you know, do something there. There is a company which is India's largest lithium ion battery recycler.

So extracting lithium cobalt nickel from the lithium ion batteries, which I think is going to be a major geopolitical thing going forward. Right. So things like this and it can be in various shapes and forms, obviously healthcare, again, there can be many different use cases.

So in my own small way, I've been trying to either invest with obviously people I know and I know that, you know, they're also out there with a purpose, sort of helping them achieve some of these objectives.

And in some cases where they are very close friends or where, you know, they are very good at whatever they do, but need some financial sort of advice early on, then I've helped give that advice as well, just pro bono, just to help them get up to speed on their plans.

So in various forms I think that social impact can come in and that is very, very interesting for me and my larger purpose and even JIO blackrock, honestly, apart from the larger opportunity that I got given that JIO blackrock are such big brands, blackrock is so large globally and both the players wanted to come into the Indian mutual fund market and start focusing mainly on systematic and quant strategies, which is largely missing from the Indian industry locally.

Apart from that, one key thing which attracted me was that the goal for both the parents was to touch the length and breadth of the country and have more financial inclusion via the reach that JIO has, the digital, you know, marketing that we are doing. So I was very happy to jump into that and help speed up that objective.

And in fact currently we already in seven, eight months have around 11 lakh 1.1 million investors and we have 20% who are first time investors in mutual funds. So that really kicks us much more than the actual AUM or whatever other numbers we talk about. So that will continue to be a big focus.

Amazing. Thank you so much for coming today and being on this and thank you for your insights. I think it'll be amazing for everyone.

Thank you.