The French bank has been at the forefront of developments in the custom & strategy index space over the last few years.
Société Générale has capitalised on its Quantitative Investment Strategies (QIS) capabilities which “have played a pivotal role” in the bank’s growth, amassing over €60 billion (US$68m) in assets under management (AuM) in recent years, particularly following the launch of the QIS funds platform.
The adoption and evolution of systematic investing (QIS) strategies has continued with the retail side of the market increasingly using liquid alternatives and enhanced beta strategies to achieve their investment goals, according to Sandrine Ungari (pictured), managing director, global head of QIS structuring at Société Générale (SG).
Hedge funds are looking at QIS as a complement to existing investment strategies - Sandrine Ungari
“We have seen a steady adoption of QIS by institutional investors since the acronym was introduced to the market about a decade ago, including pension funds and asset managers,” she said. “This type of strategy was first adopted by sophisticated investors like pension funds, but we also see progressive adoption by asset managers of various sizes.”
Most recently, the French bank has seen increasing interest from hedge funds which was previously thought unlikely because they have their own IP.
“Hedge funds are looking at QIS as a complement to existing investment strategies and as a way to get market access and extracting specific market parameters,” said Ungari.
“In the retail space, we see growing adoption through ETFs, particularly in the US where there has been a significant shift from mutual funds to ETF-based strategies driven by favourable tax treatment.”
According to Ungari, QIS activity in the ETF space is focused on enhanced beta solutions like long equity positions with volatility harvesting, call and put writing strategies and options-based trading. This increasing demand has forced product providers to develop more accessible, lower-cost investment strategies such as the JP Morgan ETF with call/put writing strategy.
“Most of the activity around QIS in the retail market is focused on volatility-targeted indices, risk control mechanisms and tail hedging strategies designed for retail investors,” she said.
“The evolution shows QIS moving from complex institutional strategies to more accessible retail investment products, with innovation continuing to drive market adoption.”
Is QIS being used as a replacement of existing hedge fund strategies?
Sandrine Ungari: QIS is disrupting somehow the hedge fund industry. QIS is not a replacement for hedge funds, but rather a complementary approach that is reshaping how hedge funds think about investing.
QIS was initially perceived as a cheaper alternative to hedge fund strategies but has evolved to become a complementary tool for hedge funds and has helped hedge funds to focus on their core strengths in active management, exploiting niche market segments and accessing difficult or illiquid markets.
A specific example is the repo market, where QIS can provide simple market access strategies, allowing hedge funds to concentrate on more specialised investment strategies. Over time, the relationship is becoming symbiotic as QIS commoditises more accessible market segments and hedge funds use QIS for accessing those market segments.
How has QIS impacted innovation in the retail market?
Sandrine Ungari: The market has seen massive investment by asset managers into actively managed ETFs and there has also been a significant shift of assets from mutual funds to ETFs and a growing number of new ETF product creations.
In the retail market, we have seen an increasing use of derivatives like options to develop new products as well as new enhanced beta solutions, volatility harvesting strategies and long equity positions with option enhancements. Product providers are seeking more tax-efficient investment vehicles providing more accessible investment strategies. This is enabling new players to offer lower-cost alternatives to traditional mutual funds, creating innovative ways to access market strategies and expanding investment options for retail investors.
The ETF field is experiencing rapid innovation, transforming how retail investors can access sophisticated investment strategies previously limited to institutional investors.
Is there a risk of potential dislocations via QIS structured products issuance?
Sandrine Ungari: QIS was primarily designed to access hidden market parameters and was not built around structured product flows. However, QIS can benefit from structured product issuances indirectly and specific market dislocations as we saw with the long-dated volatility market in rates originated from advanced insurance products in Taiwan. This strategy remains effective despite initial flow changes and continues to be driven by uncertainty in fiscal and monetary policies.
CMS spread options is another area where we have seen activity related to structured products as structured product issuances on curves create hedging needs and structuring desks at banks require volatility on spreads. Volatility on spreads tends to be expensive due to these flows and creates market inefficiencies that QIS can exploit.
Structured product issuances are cyclical and they move significant volumes. The QIS approach with structured products is opportunistic as it looks to extract value from market inefficiencies created by structured product issuance cycles, rather than directly trading these flows. QIS strategies can identify and monetize these temporary dislocations and create potential market solutions and trading opportunities.
Can you elaborate on some of the most recent strategies developed by SG: evolution funds, dynamic put ratio strategy, volatility targeted strategies and alternative risk transfer?
Sandrine Ungari: The Dynamic Put Ratio Strategy is related to tail hedging and provides insurance against sharp market drops. The goal is to mitigate the high cost of buying insurance and create a diversified approach to tail hedges. Looking back, April was a test period for these tail hedges.
Alternative Risk Transfer strategies remain popular and are based on risk control strategies used in the retail and indexed annuity markets. QIS allows creating indices that stabilize returns, makes structuring products easier and helps manage correlation between different asset classes (e.g., bonds and equities).
Volatility-targeted strategies are closely related to risk control indices seen in the retail structured products market, particularly common in annuities and consumer-focused investment products.
QIS underlyings have become popular in markets like the US because they make returns more predictable for retail investors. In addition, these QIS indices stabilise returns and risks when it comes to pricing.
We can also create baskets of indices that mix different assets (e.g., bonds and equities) and stabilises correlation between asset classes. They have become popular because they allow to manage volatility targets dynamically and responds to changes in market correlation.
Is performance backing the increasing adoption of QIS?
Sandrine Ungari: Performance is everything in the market and crucial for further QIS adoption alongside having a live track record. You do not have to rely on back-testing as the most determining factor for increasing adoption as some strategies have been running for 10 years and are still actively traded.
QIS has achieved reasonable sharpe ratios (around 0.7-0.8), and its performance is comparable to bonds or equity.
A few years ago, without a live history, most investors said “this looks promising, come back in 1-3 years” but the investor perspective has changed as we consistent performance builds credibility. Our long-term view is that the more strategies are developed and tracked, the more efficient and attractive QIS becomes for investors.
What do you think are the main characteristics of QIS usage?
Sandrine Ungari: QIS is primarily used as an overlay or complement, not a replacement: Primary use cases are aimed at providing additional diversification, solves problems in traditional asset classes and offers an overlay to existing asset allocations.
QIS has also become another part of portfolio construction as managers can now expand their existing equity and bond exposures and create an additional layer of strategy with a more of a “portable alpha” approach. QIS is particularly useful in situations like 2022, where both bonds and equities were selling off. QIS has proven to provide diversification when traditional assets fail and helps manage correlation between asset classes.
They are not meant to replace bonds or equities as they are designed to complement existing portfolios but to help manage risk and provide alternative market access and address the limitations in traditional asset allocation.
This article is an abstract from the ‘SRP Index Report 2025: Custom & Strategy Indices’, which can be downloaded here.
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