The Right Stuff
IN PRINT ARCHIVE CIR Winter 2007
By Jeff Brown, CFA, chief investment officer, Highstreet Asset Management Inc.
Have you ever wondered how to assess your manager’s investment process? To find out what standards are currently being used in the industry and what questions are being asked, I spoke with 60 industry participants including investment managers, consultants, plan sponsors, brokerage houses and industry service providers across the continent and abroad. I asked each one the same question, “What do you feel constitutes best practices within a quant investment process?” From there, I formulated a list of best practices, which are relevant to the industry at large, and have listed them below.
and definitional confusion
of the investment industry
reliance on forecasts and estimates
of traditional constraints
From this best practices
study we believe that the quantification of the investment industry
is well underway. A significant finding is that increased client
sophistication will result in the industry pendulum swinging away
from its current benchmark-centric orientation. Plan sponsors will
continue to move away from traditional risk management constraints
in favour of more sophisticated risk management approaches. This
will provide investment managers with greater freedom in their pursuit
of alpha but it will also confer greater responsibility on them.
No longer will they be able to rely on traditional risk management
constraints as a way of managing portfolio risk. Investment managers’
risk management skills will need to be elevated and it will continue
to be a key strategic differentiator.