2018 NextGen

“Nicolas is a sharp, driven, highly skilled investment professional. He has a long and successful track record in hedge fund investing. He operates with the highest integrity and is a role model and mentor who extends his generosity, energy and enthusiasm into the broader community. We are proud that he is being recognized with this award!”

— Marlene Puffer President and CEO, CN Investment Division

Some called it a moonshot, Nicolas Dang called it a stair climb to alpha in the form of active management with liquid alternatives. The absolute return manager of the $14 billion Canadian National Railway Investment Division is leading the fund’s absolute return platform and has developed significant expertise in alternative risk premia, hedge funds, and tail-risk hedging strategies. The strategies have become so successful that they’re now a core component of the portfolio and the risk-adjusted returns are spilling over to help other teams in addition to Dang’s  own. To him, active management means creating something new, and a theme for his managers is “disrupt or be disrupted.” He believes there is “no elevator to alpha” and that fees “aren’t a four-letter word,” but Dang is cleaning house to make room for managers who use technology innovatively.  

The finance medalist grad of Concordia University has worked as an equities and derivatives trader, partner, and co-owner of a hedge fund, and president of the Bouthillier-Dubord Foundation. He founded the Junto Montreal Society, a not-for-profit based on Ben Franklin’s Junto Club, with a goal to further intellectual philanthropy to aid humankind.

CIO: What are the accomplishments you are most happy to have achieved recently, and why?

Dang: I have been privileged to work with a team of fantastic talent at CN Investment Division. Alongside with core long-only businesses, the Absolute Return platform, which I now lead, has developed significant expertise within the liquid alternative investment arena. We have built knowledge and capabilities in concurring investment areas which resolve to benefit the pension fund through upward, sideways, and downward markets. These areas of competencies include direct implementation and external allocation to alternative risk premia, hedge funds, and tail-risk hedging strategies.

The historical context adds to the story line. At inception, the Absolute Return activity corresponded, in a sense, to a “moonshot.” In hindsight, it was a good decision to have shouldered the ambitious and exploratory project, which was initially undertaken with uncertain output, but had prospectively attractive outcomes. Today, the activity has become a core component of the CNID investment strategy with a spill over benefit beyond its own sphere, which facilitates the growth and success of other internal teams as well. The leap of faith is paying off, and we hope the future will continue to be bright and that the ongoing efforts will continue to reward the fund by means of strong and reliable risk-adjusted return and financial markets innovation.

The present-day savoir-faire of the group is a result of more than a decade of hard work, sweat, and numerous lessons learned through some mistakes and failures. Its success owes to the ongoing commitment and trust from senior executives, who supported the ground-breaking activity throughout the good and more difficult investment environments.

The accomplishment which I am most proud of is having uncovered capability in areas that builds upon the division’s existing expertise in traditional asset classes and private alternatives. It is our belief that the liquid alternative industry is here to stay, and it will furthermore grow in scale, scope, and sophistication. To include this business as part of an already comprehensive menu of skill-sets augmented the fund’s competitive advantage.

CIO: What would you be most excited to accomplish in the year ahead, and why?

Dang: We are living in the most technologically advanced time in human history, and the pace of progress is further accelerating. Technology is omnipresent and applied to all industries, including financial services.

In the years ahead, I believe that active managers competing via ways of traditional financial methods will be left behind. Some highlight the Darwinian nature of the industry that sets out to favor those that are the fittest to adapt. I take it a step further, stating that leadership no longer sets out to compete, they must disrupt. Winning in active management is about moving into the unknown and creating something new.

The rate of technological adoption is set out to be a key metric to future success. We are most excited to partner with alternative asset managers who have recognized a sense of urgency in being on the forefront of innovation. “Disrupt or be disrupted” has become a major theme in our manager selection process.

It is, however, challenging to predict how things will shake out and who will come out as clear winners in this technological arm’s race. Nevertheless, we’ve realized the hard-pressed need to proactively shift current and future investments towards managers who are pushing forward with ambitious corporate strategy that embraces significant technology spending campaign.

Our investments in liquid alternative strategies will continue to shift away from disrupted and out-of-date alternative asset managers, towards those that are or becoming technology companies. It is my strong belief that this thematic will pay off over the long term. Further value will be created for those who can figure out an efficient way to bridge for a knowledge transfer between the technology-driven managers and asset owners. 

CIO: What’s the most rewarding aspect of being an asset owner?

Dang: The responsibilities bestowed upon us, as pension fund managers, to safeguard and compound the hard-earned dollars of a significant number of loyal employees and to help them achieve a financially successful retirement is, in itself, quite rewarding.

CIO: What’s the most challenging?

Dang: The financial services industry continues to lose its luster in the competition for talent to higher-growth industries such as technology. As asset owners, our ability to attract and retain top talent has been increasingly challenged.

We are exploring ways to buck this trend.

In an attempt to solve the talent challenge, we have been increasingly tapping in on our external managers to leverage their skills. If there is such thing as the “uber-ization” of talent, we will continue to tap into the spare capacity of talent from our external managers.

Another way could be to look for talent from outside the sphere of finance and even outside that of STEM. Perhaps it is at the outer circle of our network that the talent lies with the much-needed diversity benefit.

CIO: What are you most hopeful about in the future of the industry?

Dang: I am of high conviction that active management will make a comeback. The growth in passive management is inherently a capitulation on the quest for alpha. I believe adversity shapes character, and character builds resiliency. “Everyone wants to go to heaven, but nobody is willing to die”. Whenever I see capitulation, I am more than happy take the other side of that trade.

Volatility is the fuel to inefficiency, thus to alpha. By many measures, cross-asset volatility is trading at low or even depressed levels. I am confident the risk to volatility in the future is on the upside.

CIO: What are you most cautious about?

Dang: I’m apprehensive about how the cyclical market environment is leading to a transformation of the asset owner business. If we are not careful, we may incur costly long-term unintended implications.  

With the current low rates environment and low level of risk premium across almost all asset classes, it naturally follows that the forecasted returns for a near future are low. This, however, impacts the business of risk-taking, which, for many, has now turned into a business of “de-risking”. The shrewdest investment teams will look to take smarter risk rather than taking no risk.

“To try to make the future is highly risky. It is less risky, however, than not to try to make it” – Peter F. Drucker

CIO: As a leader, what are the most important aspects of the industry you hope to change over your career?

Dang: As a leader, I make it my mission to help change the following aspects of the industry throughout my career:

A. Help shift the fundamental nature of thinking, acting, and managing capital towards an outcome-focus rather than focusing on output. An outcome approach to management requires strategic focus on what matters and the results that count for the client. A focus on benefits, rather than process and on what one needs to do.
B. Help shift the mindset about fees and cost away from the four-letter-word category. Level of fees should not be the main driver of business decisions. A rational market participant should be willing to incur cost to make money, net.
C. Inspire a mindset of ambition and exploration at all levels of the organization and hopefully enable spillover of the benefits to the community.


CIO: If you had one piece of advice for your peers, what would it be?

Dang: The one piece of advice that continues to guide my investment philosophy is the motto of Blue Origin, a spaceflight service company founded by Jeff Bezos: Gradatim Ferociter, Latin for “Step-by-Step, Ferociously.” In my quest to compound significantly large sums of capital, it’s rather prudent to recognize that there is no elevator to alpha, one must take the stairs.

This motto is a necessary reminder that investing is a process, and that slow and steady wins the race. Discipline is the bridge between goals and accomplishments. Rigor creates the gravitas for alpha. Those that decide to take shortcuts, cut corners, or attempt to produce outsized return too rapidly will likely be the source of alpha for others and face the perils of drawdown, which amputates geometric return. The financial markets often find ingenious and unexpected ways to take away returns from those attempting to get rich quickly.

The only way I have learned to make solid, reliable return is to mechanically apply a rigorous, yet simple, and unrushed process. I believe this works because no one dreams about getting rich slowly. Alpha is a zero-sum, return needs to come from somewhere else. I side with the “build wealth slowly” team.

Let me borrow the brilliance of Jeff Bezos’ idea that “slow is smooth and smooth is fast” and make parallel with the realm of investments: Smooth return will compound ferociously!


CIO: What are the biggest current trends you are seeing that have surprised you?

Dang: I am incredibly focused on the wisdom and exuberant behaviors of the crowd, which sometimes stretches into extended trends. We often uncover great opportunities around these behaviors.
I believe the biggest market trend that surprises me the most is the relentless “reach for yield” behavior by an exceedingly high number of investors who are pushed into disregarding the potential downside risks. There are many investment opportunities arising on both sides of that trend.