As far as I know it, my blog remains unique in its focus, addressing topics such as the GIPS(R) standards, rates of return, performance attribution, and risk on a regular basis.
To date we've attracted some 500 visitors, which I guess is pretty good as a start. Our newsletter has several thousand subscribers, so perhaps we have a bit to go to get to that level. Visitors have come from every continent and many different countries. And while only a few have signed up as "friends" so far, we know that many circle back regularly. The idea of being a "friend" is that you are notified when a new post is added.
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I'm pleased that we've had a few comments regarding posts, as this suggests that some agree while others not with what has been offered.
I've now been blogging for six months and am open to your ideas, thoughts, suggestions. Feel free to contact me directly (DSpaulding@SpauldingGrp.com) or by posting a comment. Thanks!
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I believe your 50th issue of Journal of performance measurement, your interveiw mentioned about risk (and other matters). This is a very interesting subject (not just in the eyes of GIPS). However, I sure you're also aware this is also not an easy topic to discuss or focus on. Everyone is a critic, maybe by you starting a dialogue, more people/users could develop a common ground in approaching this topic.
ReplyDeleteAs Yale's Endowment's CIO, David Swensen wrote, "quantitative measures of risk have a lot to be desired." Definitely a tough subject.
ReplyDeleteYale is probably the most interesting example of whether or not investors (especially the most forward-looking investment trend setters) really do understand the risks they take with their investors' money. In my opinion, it's easy to generate seemingly insightful quotes such as Swenson's ("quantitative measures of risk have a lot to be be desired.") Often, these little nuggets of wisdom are little more than generalizations without any real practical guidance or value.
ReplyDeleteUsing Swenson's quite, let's turn from quantitative to qualitative measures of risk, starting with LIQUIDITY risk. This is not part of ANYONE'S risk model - especially the Ivy endowments like Yale and Harvard. I recall having a meeting with Mr. Swenson a couple of years ago, and my first question was about whether or not Yale had enough liquidity in their portfolio. After all, they allocated 75% of their portfolio to relatively illiquid alternative investments such as private equity. He assured me that, even though they had less than 5% allocated to bonds via Treasuries, they had more than adequate liquidity. I was skeptical.
Fast forward to the end of 2008 and we see Yale's endowment losing over 25% in the 3rd quarter alone. This reduced both their 10 year and their 20 year performance record by 400 bps on an annualized basis! Worse still, both Yale and Harvard had to borrow over $1 billion each. So, it seems that QUALITATIVE measures of risk (like the simple question: "Do you have enough liquidity?") must leave much to be desired also. OR... is it that our assessment of risk, our interpretation of risk, our ability to detach our emotions and human biases such as OVERCONFIDENCE are the true culprits here?
In my opinion, it's not about risk measures and calculations and rates of return. It IS about sound risk control procedures and processes, adequate due diligence, and the willingness to plan for the inevitable risk question: "What if I am WRONG in my judgement about markets, forecasts, calculations, etc.?" Seems that our human weaknesses may be the one risk that we don't consider. We should.
I would classify human risk (ethics, knowledge, on going firm's practice) under operational risk. Mr. Campisi also mentioned liquidity risk. How about market and credit risks? If someone was to present all these risks in a presentation, there are several questions that I have: 1) Is it worth the trouble, 2) How do we quantify or estimate reasonable risk measurements and 3) will the client understand it (how to we test the knowledge of the client?) and 4) if the client doesn't understand it - 4a)is it worth the effort - 4b)is this another level of risk we need to consider
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