Published in Financial Advisor Magazine in April 2013
Is modern portfolio theory dead? The principals at Toroso Investments LLC won’t go that far, but they do think MPT let down investors during the market pratfall of ’08-’09. And they believe they’ve constructed portfolios that more closely align with an investor’s risk tolerance and time horizon.
Toroso took shape last summer and spent the rest of the year laying the groundwork to roll out its portfolios to investors through a client base of financial advisors, managed account platforms, endowments and the pension and defined contribution markets. The firm threw itself a coming out party in February with an evening soiree on the floor of the New York Stock Exchange that featured a presentation by legendary economist Burton Malkiel and a spread that included tapas and Spanish wines.
Based in New York City, Toroso (a combination of “toro” and “oso,” the Spanish words for bull and bear) was founded by a trio of financial services veterans with fortes such as investment strategy, 401(k) design and marketing. CEO Larry Medin and chief financial officer Dan Carlson previously worked at Avatar Associates, an institutional money manager whose client base includes financial advisors and the 401(k) market. Chief investment officer Michael Venuto was most recently the head of investments at ETF provider Global X Funds.
Toroso’s basic premise is that MPT-style portfolio diversification, which seeks to maximize returns given a specified risk level, failed during the market crash largely because of the increasing correlation of world markets and various asset classes. The Toroso team––and many others in the industry––believe that MPT’s backward-looking assumptions to quantify future portfolio risk are flawed.