The prize aims to promote advancements in quantitative methods and their practical applications in finance. By highlighting exceptional research, the award acknowledges the importance of quantitative analysis in making informed investment decisions and improving portfolio performance.
“We were very happy when receiving the call from CFA Society Norway. We view this award as a testimony that our hard work has been recognized and appreciated,” says Vorpenes.
With both being interested in asset management, they wanted their thesis topic to be related to machine learning applications in finance.
“In our first discussion with our supervisor, professor Roberto Tubaldi, we thought this topic was new, challenging, and the previous literature on private factor performance was rather unexplored,“ says Bakken.
In the competition, students must submit original research focusing on the topic of Quantitative Finance. The report should concentrate on important, practical, innovative topics and is evaluated by a panel of 8 judges.
Private market growth
Vorpenes and Bakken’s research paper "Latent Factors in Private Markets” focused on economic returns in private markets and used machine learning literature to identify risk factors as the underlying drivers of the true returns in private market funds.
Importantly, the results indicate that private markets offer unique exposures and contradict recent claims that returns from private markets can be replicated by constructing low-cost portfolios in the public market.
As a backdrop, private markets have experienced a sustained period of growth since the global financial crisis in 2008, with total assets under management globally surpassing USD 11.7 trillion as of 2022. Some investors argue this popularity is due to investors’ preference for the low volatility in illiquid assets.
“The lack of mark-to-market accounting influenced by valuation changes with a partial lag results in a smoothing effect that causes the quarterly appraised net asset values to be autocorrelated. These returns understate conventional risk and performance measures, leading to an overstatement of their potential for diversification, or a misleadingly high alpha, “ says the two students.
After completing their MSc in Finance at BI in 2023, Bakken moved to Germany to begin as an Analyst at the US-based hedge fund FourWorld Capital Management, while Vorpenes started at Nysnø Climate Investments as an Investment Associate working in Fund-of-Funds.
Industry showcase
This year’s competition was the ninth of its kind and features participation from local societies of CFA Institute from France, Netherlands, Ireland and Norway.
“It is the first time CFA Society Norway has participated in the competition, and we are very proud to have Norwegian winners. Norwegian students continue to do well in international competitions, and Brage and Tor André prove once again that Norway has talents within several different branches of finance, “says Erlend Fredriksen, Chairman of CFA Society Norway.
Bakken and Vorpenes presented their paper at a ceremony at NBIM’s headquarter in Oslo, which showcased a blend of industry and academic expertise and insight into current AI and machine learning trends.
