Risk policies for active asset managers
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Dario Brandolini is part of the Asset Allocation and Strategy Department at Ras Asset Management, which he joined in 1997 after several years in the finance industry as an applied macroeconomist. He studied economics and politics in Turin (Italy) and in Manchester (UK), and is a lecturer on the Master in Finance course at CORIPE, University of Turin, and on the Master in Economics course at Bocconi University.
Massimiliano Pallotta joined the Risk Management team of Ras Asset Management in 1997, working on the quantitative and technological aspects of the development of the company’s external model. He studied mathematics in Milan (Italy) and he has practical experience of the technological aspects of the risk management process.
Raffaele Zenti* has been a risk manager at Ras Asset Management since 1997. He works on the development of the internal risk model and on the definition and application of risk policies to actively managed portfolios. He studied economics and statistics in Turin, and is a lecturer on the Master in Finance course at CORIPE, University of Turin, and the Master in Economics course at Bocconi University. *Ras Asset Management SGR SpA, Piazza Velasca 7/9 5th floor, 20122 Milano, Italy Tel: ⫹39 02 80 200 506/684/491, Fax: ⫹39 02 80 200 239, e-mail: [email protected]
Abstract Recently in the asset management community, there has been a lot of attention given to techniques for estimating risk indicators. The authors’ focus is on the use of risk indicators, that is, they concentrate on risk policies rather than on estimation techniques. The aim of this paper is to assess, from an empirical point of view, whether a risk policy based on the use of other risk indicators besides tracking error can improve the risk-adjusted relative performance of an actively managed equity portfolio. Keywords: risk policy, asset management, risk management, investment risk, tracking error, filtered bootstrap
INTRODUCTION Asset managers and institutional investors progressively pay more attention to risk management, because of its practical impact. The Unilever Superannuation Fund’s high-profile case against Mercury Asset Management (now owned by Merrill Lynch Investment Managers) has made the investment community improve the way it analyses and manages portfolio risk. In a high-profile courtroom battle started in 2001, Unilever claimed Mercury Asset
䉷 Henry Stewart Publications 1479-179X (2004)
Management took on too much active risk in its investment decisions, claiming negligence. In addition, institutional investors increasingly define mandates’ limits of risk on the basis of tracking error (or another metric) and it is not uncommon to see management fees paid by sponsors linked in some way to realised risk. These facts, with the additional incentive of almost three years of weak equity markets, suggest that active asset managers should now increasingly focus
Vol. 4, 6, 407-414
Journal of Asset Management
407
Brandolini, Pallotta and Zenti
their attention on potential risk. Central to any risk bud
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