With early career roots in both equity derivatives and relative value fixed income, Lisa O’Connor is now the Co-CIO of Multi-Strategy Assets and Solutions at BlackRock. Here she oversees her team’s development and delivery of a long only, systematic asset allocation process on behalf of the firm’s clients.

Our discussion first considers some of the lessons Lisa has derived from market risk cycles. In reflecting on vol episodes, she asserts that markets become very focused on relative value during times of crisis. That is, in higher risk environments, there’s much greater differentiation across risk categories, as investors evaluate which assets can truly be defensive or at least weather the storm.

We talk next about the model portfolio process and the mix of quantitative and fundamental factors that drive the asset allocation decisions. In contemplating the role of duration as a portfolio ballast, Lisa is concerned about risk premia in the back-end of the curve as a function of fiscal deficits. Instead, she sees value in diversifiers like gold, especially as China is increasing its holdings.  We also spend time on AI and the challenges of being too little or too heavily invested. In looking for evidence that the roaring capex cycle may have peaked, she is following emerging signs of spending discipline from hyper-scalers and tracking the reported ROIs from investment out 18 months.

Lastly, we talk about the Fed easing cycle and its potentially positive implications for the market pricing of equities with more balance sheet leverage.

I hope you enjoy this episode of the Alpha Exchange, my conversation with Lisa O’Connor.