Robert Litterman

Robert Litterman earned his PhD in economics from MIT and spent over 25 years at Goldman Sachs, eventually becoming head of Quantitative Resources at Goldman Sachs Asset Management. His most enduring contribution to finance is the Black-Litterman model, which he developed in 1990 with Fischer Black while both were at Goldman Sachs. The model addressed a fundamental practical problem with mean-variance portfolio optimisation: the Markowitz framework is extremely sensitive to inputs, generating unstable, concentrated portfolios when small changes are made to expected return estimates. The Black-Litterman model resolves this by starting with the market equilibrium portfolio implied by the CAPM as a "neutral" prior, and then allowing investors to tilt the portfolio towards their specific views on asset returns using a Bayesian updating mechanism. The result is a more stable, diversified portfolio that blends market consensus with active investor views in a coherent framework. The Black-Litterman model is now used by asset managers and pension funds globally as the standard approach to quantitative portfolio construction. Litterman later became a prominent advocate for carbon pricing and climate risk management, leading the Commodity Futures Trading Commission's climate-related financial risk subcommittee and publishing research on the economics of climate risk.