Fund Directors Series: Portrait Of... Alan Picone, Conducting Officer, Kinetic Partners
Portrait of… Alan Picone
Conducting Officer at Kinetic Partners, he has built a unique Risk Management approach, applying physicist models analysis principles to the financial markets.
By Isadora Pardo – Director – TechFin Luxembourg
In this crowded eating place on a Tuesday at lunch time, I appreciated that the table was wide enough to fit both my large notebook and this feast of scallops and rucola we had both selected from the daily menu. Alan Picone’s eyes twinkle as he speaks about his passion – physics and mathematics – in an overly enthusiastic flow of words. Alan is CEO and Conducting Officer at Kinetic Partners in Luxembourg. He approaches the world of finance and risk management in a unique way that I would like to share with you today.
Alan Picone holds a Master Degree in Physics, Mathematics and Engineering from the prestigious Ecole Polytechnique Graduate School in Paris. He also has a Master Degree in Theoretical & Quantum Physics from Ecole Nationale Superieure, and a PhD in Statistical Physics. « I never really studied economics or finance. Rather, my main field of interest was, and still is, physics and the understanding of the rules and machinery governing the world’s natural phenomena. Statistical physics strives to explain how particles, in certain conditions, organize themselves and come to cooperate, on large scales and in ways that create a state or property we can apprehend. This is macroscopic, deterministic order, emerging out of microscopic chaos and randomness.» He seizes his glass full of sparkling water and looks through the little bubbles: « Look at this glass; it looks like a plain solid container made in just one piece, but it is not. It is made of billions of billions of billions of tiny elements moving constantly in all directions. It is amazing the water does not flow from it, but still, it does not, because of a collective phenomenon within the glass material! Every phenomenon can be explained as the result of N factors. Take the weather for instance: standard weather forecast only use three factors: temperature, pressure and humidity. However, we would need over 80 factors to fully explain the weather… As a result, today’s forecasts are sometimes inevitably wrong! » This is how Alan Picone became curious about finance phenomena, and decided to export his knowledge of collective phenomena analysis to the financial markets: « Finance is a gigantic social laboratory. Looking at markets means deeply penetrating the way human beings interact. Financial markets being a place where buyers and sellers interact, it makes them an emblematic collective physical system: very large number of economical agents, each one with his own convictions, wanting to optimize his gain. And yet, there comes a miracle in the sense that, out of these totally erratic, highly individual approaches, the market reaches a global equilibrium: a price. Where does this equilibrium come from, how long does it last, what are the influencing variables? What are the price dynamics and how can we interpret the wild swings of financial markets? These are typical questions for a physicist, who studies these exact same questions in a variety of fields in nature, such as forest fires, earthquakes or avalanches. This analogy convinced me that all markets must unwittingly follow laws of physics, and I could really make a contribution there!» Indeed, the world of finance is all about building models and ensuring they work over the long term, through back-testing. Unfortunately, there are instances in finance where models are still in use, although everyone knows they only work in ‘normal’ market conditions. « Where a physics background really helps, is in the approach to comprehend the markets’ dynamics: The physicist implements the model to explain what we see. At first he represents 90% of the phenomenon. Then he keeps working on the model, to reach a 95%, 98%, 99.9% representation… And he is not reluctant to getting rid of models that no longer work. »
In 2004, Alan Picone started his Luxembourg career with Banque Privée Edmond de Rothschild as Risk Manager. He considers himself fortunate as they really empowered him in putting in place a brand new risk management approach for the bank and the investment funds selection activity in particular. In 2007, he worked for Kaupthing Bank in a very troubled period. « This experience radically transformed me and reshaped my vision of risk management. First I learnt, the hard way, how liquidity risk is most critical. Then, I found out the inner meaning of the expression the « invisible hand » of the market: no matter how deep your analysis, how thorough your knowledge of your clients, how good the management, there are still events that remain outside the scope of your analysis, and keep you from preventing a crisis to occur! ». In 2008 Alan Picone started to work for Deloitte as Senior Manager, then Director for the Financial Risk Management consulting unit. With Deloitte, Alan reconnected with research and product engineering: understanding client requirements, analyzing, writing specifications, making a true product or service come to market. « Consulting is a lot like research. However, consulting means optimizing under constraint ».
In 2013, Alan started working for Kinetic Partners Luxembourg Management Company. He became Managing Director for the Luxembourg entity, and Global Head of Risk. To him, this position combines all the skills and experiences he has developed over the past 15 years, while adding the business management aspects. « This is really exciting: in Luxembourg, we are working with a true entrepreneur mindset: we have the dynamism, the rage to win new clients, new market shares. Still, we can count on the backbone resources of a 3000 staff global company! As a true believer in team spirit, cohesion and team work, I really enjoy managing this team of outstanding professionals. » For a number of years, Alan Picone had been captain of his football team. « I was most likely not the best player in the team, but I was always the captain, the one who drives the team and gathers the members around him towards a common achievement.» For Alan, managing people means inspiring, letting people take initiatives, encouraging creative ideas generation. Then, he wants to be tightly involved. « My people know I am here whenever they need me. To me, a team leader is someone who understands people as individuals, make them grow and give them wings! »
Since he started at Kinetic Partners, Alan has developed a unique offer in risk management, applying his analytical physics background to the risk management models and offer. « It is a good thing that more and more risk managers are in the Boards of Directors, and more decision makers are former Chief Risk Officers ». Following the ever-growing diversity of funds and instruments, the scope of Risk Management has broadened. « Risk Management is a center of opportunities, which brings concrete value-added solutions. Risk Management keeps growing in the industry, with new instruments to analyze, and the rising influence of risks related to digitalization. The industry needs to promptly react by putting the right experts at the right places! Risk Management tends to become the driver of asset management, and even management itself, bringing into force its building principles such as risk measurement, metrics and risk mitigation. » This introduces the brand new face of the risk manager, who now drives the decision process and offers directly applicable business solutions. For Alan Picone, the Risk Management era is just beginning: « substance is a very hot topic that will surely keep gaining momentum. One of the most striking consequences of being UCITS V, is this ever-increasing need for independence, of Management Companies, of risk managers, of directors, … Risk-oriented mindsets will spread over all company levels. The Boards of Directors will invite new expertise profiles. Particular focus and expertise will be required around liquidity risk, valuation risk and model risk. The financial markets landscape will redesign, through the rise of dematerialization, crowd-funding and social networks. » This opens exciting perspectives to such a life-long learner who has turned researching and understanding the world into a way of life.
Besides mathematics and physics, a true passion he passes along to his two young sons, Alan is fond of traveling « because we have always loved discovering amazing sceneries. A few years ago, my wife and I went to British Columbia with our older son. Hiking one of the most breathtaking sceneries I have ever seen, we found ourselves on our own, with grizzly bears, as we were gazing at a magnificent lake. I like the adrenaline in new challenging situations, in creation, in innovation! »
As the plates were long gone and the last drops of coffee had vanished, Alan’s words overflowed with enthusiasm and energy were still filling the room. We swiftly left the place and walked separate ways, as the risk management duties cannot wait. Walking with my notebook filled with quotes, from this interview and the previous six interviews of our « Portrait Of…» series, I was thinking: thank you Alan Picone for sharing your inner views of the industry with us today.
About Kinetic Partners Luxembourg Management Company
Kinetic Partners, a Division of Duff & Phelps, provides a range of award-winning compliance and regulatory consulting, risk consulting and infrastructure, due diligence, tax advisory, and business services to the global financial services industry. Clients consult this team of specialists at all stages of the business lifecycle to navigate the changing regulatory landscape and build, manage and protect their businesses.
More information? Please visit http://www.kinetic-partners.com/about-us/jurisdictions/luxembourg-services/