Grandmaster of Risk

At Prudential Financial, ex-NASA engineer GEORGE PATTERSON runs through a few trillion calculations to make a client happy.

- William Baldwin

The beauty of theoretical physics intersects with the messy business of stock picking at the Newark, New Jersey, office of PGIM Quantitative Solutions. There, George N. Patterson, a physics Ph.D. who left a career at the National Aeronautics & Space Administration to work on investing, presides over a research team that includes 13 other doctorates.

A physicist on Wall Street? If you’re into partial differential equations, you won’t find this such an odd fit. The equation that describes the drift of stock prices is almost identical to the one that defines the movement of heat. There is a big difference, though, between the disciplines of natural science and finance. Planets follow predictable trajectories, while securities markets are sometimes just nutty. Patterson makes the point: “Gravity never has a bad year.”

As PGIM Quant’s chief investment officer, Patterson has the task of adapting abstract theories found in finance textbooks to the practical assignment of assembling stock, bond and commodity portfolios for mostly institutional clients. Tools: arcane objects like copulas, directed graphs and hidden Markov models. Input: 61 terabytes of data. Output: 400,000 trades a year.

“We’re like a baleen whale filtering tiny shrimp,” Patterson says. A whale in a big pod: PGIM Quant accounts for $102 billion of the $1.3 trillion in global investment management at Prudential Financial, the 149-year-old insurer.

Patterson, 58, remembers from his childhood a visit to the New York Mercantile Exchange with his father, a commodities trader. So perhaps it was not a surprise that, early in his career doing computer simulations at NASA’s Pasadena, California, lab, Barclays Global Investors was able to lure him away. He joined PGIM in 2017.