You are Mateo Aizpurua-Vidal, head of quantitative research at Quillaven Capital Advisors in San Joaquín. It is 14:30 on Wednesday 29 April 2026, and at 16:00 the Investment Committee will hear your proposal for a systematic overlay. The first number you must commit to is what trading will cost.
The situation
Sofia Quiroga-Iturbe, who owns the firm's research data, has just put a ten-bar chart on the screen. It sorts 85 Latin American mid-cap companies by how far their last quarterly earnings beat or missed analysts' consensus. The biggest beats kept rising for sixty trading days after the announcement; the biggest misses kept falling. Buying the top group and selling the bottom one earned 7.3% over those sixty days, with a t-statistic of 2.4, on 36 months of data.
Quillaven manages USD 4.2 billion, mostly for regional pension funds. Its USD 1.6 billion flagship has trailed its benchmark by 320 basis points over eighteen months, and Carlos Rodríguez-Palmieri, the chief investment officer, has asked your four-person desk for an overlay sized at USD 240 million. Your desk has never run a systematic strategy in production, and several of the firm's portfolio managers regard it as junior.
Trading here is expensive. Pablo Mancera-Dueñas, head of trading, has handed you a log of 14,000 trades from the last six months: the median round trip in Latin American mid-caps cost 72 basis points, against 18 in U.S. mid-caps. Shorting is harder still: 42% of the companies in the bottom group had no shares available to borrow. Three estimates of annual trading drag are on the whiteboard: 450, 650 and 1,000 basis points.
Carlos distrusts patterns found in small samples. Andrea Mendívil-Castaño, head of risk, will ask whether each return really belongs to Quillaven. And everything else in your proposal will rest on the cost you choose.