Josef Lakonishok "has established a strong reputation for insightful research on investment management," according to the website of Chicago-based LSV Asset Management, the quantitative value equity shop he helped launch in 1994. Increasingly, though, the finance professor from the University of Illinois at Urbana-Champaign has been garnering more notice for his practice of the money management art than for his contributions to theory. In a little more than a decade, LSV has gathered just less than $50 billion in assets under management with a computer-driven active quantitative investment model grounded, in part, on behavioral finance theory. With almost all of LSV's strategies either closed to new money or about to close, the explosive asset gathering phase of the firm's existence might be coming to a close. But Mr. Lakonishok said LSV's commitment to researching the latest ideas needed to keep its models ahead of the competition is enough to motivate his longtime team. For his part, the CEO and CIO says he's having too much fun at 59 to think of doing anything else. Were you ever an efficient markets devotee? At the point in time I started to form a decent opinion, I don't think I was a believer. It somehow didn't sound as if markets were so efficient at incorporating everything and sorting things out. For a quant shop, does the investment process largely run itself or does the model require constant upkeep? It is never complete. Coming from academia, we're always curious about new ideas. I probably spend close to 50% of my time thinking about research, doing research and other people in the company are also involved in it. Has LSV's model changed much? I cannot tell you we completely changed it. We definitely (have) a deep value orientation. We like to buy out-of-favor stocks. (But) you constantly do changes and improvements, and we definitely did our share in the last five years, even in the last year. Take a simple indicator like earnings to price: There are so many definitions of earnings … you can spend your whole life just trying to sort out what sort of earnings indicator you can use. So I couldn't necessarily step in for you and take over? If it's good, the model probably doesn't become obsolete overnight. But at the same time, people are giving you a lot of money, people put their trust in you, and I think that it is my obligation to make sure it's the best possible model that we can come up with. Other quant firms that are now growing by leaps and bounds saw clients flee when their models underperformed during the tech bubble. LSV continued to grow. We underperformed in '98, '99. We had decent years in '94, '95, '96, '97, but then we stumbled. Our losses were not double digit vis-a-vis the benchmarks, as many bigger value money managers experienced. We got a lot of clients at the beginning of '98, probably because of our good past performance. I don't think that in '99 we got a lot of money. But we did not lose assets. That must have required a bit of hand holding. We definitely did a lot of client servicing during those tough times. Clients wanted to see if you still had confidence in what you're doing, if you are maybe caving in to the pressure. It was really a time when we as a money manager grew up, but at the same time, clients probably saw a lot of determination, and maybe that helped us out. Speaking of growing up, your assets under management have quadrupled over the past three years. Yeah, a lot of money started to come in. Is this rush of new clients to LSV a subject for behavioral finance theory? You know, what can I tell you? People definitely look at past performance (and) we had some very good numbers. (But in addition) we're a very stable team, no departures. Another reason: We closed a lot of our products, (which) potential clients like. By the end of this year we might have only our enhanced index open. Will it be tough to attract the best people to a firm whose products are all closed? I don't think so. Maybe growth is not going to be extraordinary, but there's enough money to go around and make everybody happy. In our case a lot of people have a stake in the company. Right now, 11 (of LSV's 35 employees) are partners, and a couple more people will become partners this year, and probably next year. You're almost 60. Will it be important for LSV's future to recycle your equity when you retire? First of all, I don't really have any plans to retire. I love what I do. It is my passion, it is my hobby, and I still have a lot of productive years left. Warren Buffett is 75 and still going strong. He's a good model. As more quant products emerge, will the opportunities LSV exploits be arbitraged away? We still get very good numbers in most of our strategies, but it will be tougher. I don't want anybody at our company to be overconfident. It's not a plus that a lot of people are trying to do similar things, but I hope the differences are still substantial, and by doing research, maybe we can enhance those differences. With more fundamental managers using quant screens, some people say the distinction between quant strategies and fundamental strategies is becoming increasingly artificial. I agree, but you know, it's like lumping opera singers together with soccer players. The fundamental guys are definitely using more screens and quantitative tools, but there are still substantial differences. Those fundamental guys are still left with a large universe of stocks and have to make decisions, after talking to management, reading reports. Quants go by the model, by the numbers, to avoid many of the behavioral biases that might still be plaguing the fundamental managers. Still, I'm not sure how important these distinctions are. There's such a huge difference between what (different) quants are doing, and different levels of competence and expertise. You can be a fundamental money manager and maybe end up with a very similar portfolio (to what) we end up with, with our quant strategy. At the same time we can be very, very different from another quant whose ideas sound very similar to what we are doing. You know the devil is in the details, and there are just so many details. Quants are being lumped together, and fundamental guys are being lumped together, and there are huge differences within each of the groups. If your stake in LSV were a publicly traded equity, what would your model be telling you to do with it now? I'm probably not maybe the most rational in my behavior. I'm definitely not taking the safest route. A lot of clients entrusted us with a lot of assets, and I take this responsibility very, very seriously. I'm not running away, I'm not cashing in, I'm staying with it. How important are you to LSV now? I'm definitely important, but at the same time we hired very good people, we continue to hire very good people, and those people are definitely doing a great job. I'm sure if something were to happen to me, the company would survive, but I cannot tell you that I'm a marginal player at LSV. You're still overseeing LSV's model? I'm still very much involved in it, but we just hired an academic from Cornell, Bhaskaran Swaminathan … and a lot of people are working with me for a long time, like Menno Vermeulen … and a lady by the name of Han Qu. I'm actually as proud of how we build our company — not only about the track record. … We do attract very good people, we are very selective in our hiring, and the people end up staying. It's definitely a fantastic team. I hear LSV could have roughly $50 billion in assets under management by the time you close your last actively managed strategy around the end of the year. I think that we might not be very far from that now. It's a huge amount. I never thought that we would be so big.