BISAM Insights Blog

Roundtable Recap: The Unification of Performance and Risk in Practice

Posted by Erika Alter, Global Head of Commercial Strategy, BISAM on Dec 14, 2016 12:00:00 PM

The added value of performance and risk analysis continues to be realized across the value chain, not only by asset managers, but also their clients. As a result, the buy-side is under far more pressure to deliver more and differentiated result sets to their investors, with transparency into the correlation between investment risk and portfolio performance. And while the unification of performance and risk is not a new idea, its practical application is still a work in progress for many firms. So what does integration mean for investment decision-making, risk analysis and performance reporting, and how should firms evolve their systems, processes and teams to adapt?

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Topics: Performance & Attribution, Risk Management

Analyzing Volatility, a Cognity Case Study: Assessment of 2008 VIX Short

Posted by Erika Alter, Global Head of Commercial Strategy, BISAM on Dec 7, 2016 8:30:00 AM

Last week, in response to a recent story in the Financial Times,TM we published The VIX, Volatility and Market Risk. In that post, we outlined the BISAM Cognity approach to modeling risk, explaining that our "real world" risk models do not assume risk equals volatility, but rather that turbulence (vol of vol),  deviation from normality and "tail-fatness" are the lenses through which market risk should also be measured. 

To this point, and as a follow up to last week's post, I'm pleased to share this Cognity backtest from our archives, which looks at a set of long and short call "what if" scenarios on the VIX in September 2008.

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Topics: Daily Risk Statistics, Risk Management

The VIX, Volatility and Market Risk

Posted by Erika Alter, Global Head of Commercial Strategy, BISAM on Nov 30, 2016 10:32:33 AM

Just before the Thanksgiving holiday in the U.S., the Financial TimesTM published a piece by Miles Johnson, Tail Risks Wagging the Dog with Wall Street Fear Gauge. In his piece, Mr. Johnson notes, “the risk for any human or computer using the VIX as a gauge of how risky or safe the market may be is that there are reasons to believe it has become an increasingly scrambled signal over the past five years.” He continues on to suggest that, “Stock market investors who have been finding solace in apparently subdued volatility may one day be in for a violent awakening.”

Putting aside Mr. Johnson’s question re: whether or not the VIX is being influenced by the huge volumes being traded in short-dated VIX futures, we at BISAM think the more important point is the noted cause for concern for “anyone currently using the VIX index as an independent variable to inform their decisions.”

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Topics: Risk Management

Post-Election Analysis: Is the Recent Market Rally Indeed Small-Caps Driven?

Posted by Erika Alter, Global Head of Commercial Strategy, BISAM on Nov 22, 2016 1:32:24 PM

In the wake of the U.S. Election and related market rally, I am pleased to present this latest research snapshot from BISAM's star quant analysts: Bono Nonchev and Velislav Bodurov.

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Topics: Risk Management

Prepare for the Unexpected - Cognity Daily Risk Statistics

Posted by Erika Alter, Global Head of Commercial Strategy, BISAM on Nov 2, 2016 8:00:00 AM

You may have noticed a new addition to the website: The Cognity Daily Risk Statistics, which visualize daily estimates of fat-tailed VaR and ETL (Expected Tail Loss), along with the widely used "normal" VaR for major global indices. And if you take a look at the Normal vs. Fat-Tail VaR spreads over the last week, you'll see that "the most interesting thing right now," as my colleague Bono Nonchev observed, "is how uninteresting the markets are at the moment."

But look more closely at the U.S. markets, and you'll see a slight widening of the Normal vs. Fat-Tailed spread, indicating potential signs of risk...perhaps attributed to the upcoming U.S. Presidential election and related unknowns?

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Topics: Risk Management

Risk Modeling and Volatility Estimation of the US Fundamental Factor Model Style and Market Factors

Posted by Bono Nonchev, Senior Quantitative Analyst, BISAM on Oct 26, 2016 8:27:46 AM

The equity style factors usually obtained via stock return cross-sectional regression have long been an industry standard and have proven their value (together with the industry factors) for decomposing equity returns and risk exposures. Along with their explanatory power for modeling the stock returns, the risk modeling and forecasting of those style factors is equally important. In addition to having the “right” factors we need to be able to model their risk “right”. In the latest research from our BISAM Risk team, including myself, Ivan Mitov, Velislav Bodurov and Boryana Racheva-Iotova, we try to go deeper into the style factor returns properties and their modeling from a risk estimation perspective.

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Topics: Risk Management

Build a Better Portfolio to Build Better Advisory Relationships

Posted by Erika Alter, Global Head of Commercial Strategy, BISAM on Oct 12, 2016 8:30:00 AM

In a recent blog post by Morgan Housel of the Collaborative Fund, The Most Overlooked Trait of Investing Success, I was struck by this particular comment: “The most overlooked trait of investing success is communicating to your clients the softer and emotional side of investing. A knowledge of market history. An acceptance of volatility as a normal part of investing. That you can be wrong on half your investments and still do well over time.”

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Topics: Reporting, Risk Management

Unification of Performance and Risk: What Should the Industry Expect?

Posted by Sean Murray, Director of Product Strategy, BISAM on Oct 5, 2016 8:00:00 AM

RIMES hosted their first annual client conference on September 15 in New York City, and invited me to participate on a panel regarding the unification of performance and risk - a topic BISAM has been exploring in some detail throughout 2016.  The panel moderated by David Spaulding touched on many of the more practical challenges of this burgeoning topic.  In fact, David summarized the dimensions of unification as systematic, organizational and formulaic - essentially the technology, operations, and algorithms that will fuel the continued adoption.

A question from the audience has stuck with me since.  What will unification actually look like?  What should the industry demand from the solution providers, and what should the solution providers create?  Let’s explore.

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Topics: Performance & Attribution, Risk Management

Five Competencies that Investors Should Expect From Their Asset Managers

Posted by Erika Alter, Global Head of Commercial Strategy, BISAM on Sep 28, 2016 8:00:00 AM

Meeting the needs of institutional clients is of course a key focus for asset management organizations, and those needs are becoming more sophisticated and more challenging.  The reporting model between asset managers and their institutional clients used to be a ‘standardized push’ model in which clients were given whatever information their managers could provide, when they could provide it, and in the format that they could provide. That’s all changed. Today’s reporting model is a ‘customized pull’ model, with the clients dictating what should be delivered, when and how.

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Topics: Reporting, Performance & Attribution, Risk Management

The Post-POINT Transition Series - Part 3: Decoupling Analytics

Posted by Sean Murray, Director of Product Strategy, BISAM on Sep 21, 2016 8:20:55 AM

Fixed Income Attribution solutions are notoriously data hungry, requiring immense amounts of data from many sources to seamlessly decompose portfolio and benchmark returns. Acquiring the data is just one small part of the equation - equally important is integrating, matching, and validating the data - not to mention ensuring the portfolio managers and external customers are happy with the selections. When it comes to choosing data vendors and data tools, the priority has typically been to focus first on selecting a vendor of index and analytics data that could meet the requirements of internal users and customers, and then simply leveraging that vendor’s data tools for a low (or no) fee.

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Topics: Fixed Income Attribution, Performance & Attribution, Risk Management, Barclays POINT Transition Series