A note on asset management and market risk

Scherer, Bernd

doi:10.1007/s11408-010-0137-7

Cited by 2 publications

(4 citation statements)

References 7 publications

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“…managing client risks not business risks. In the view of this paper, this needs addressing as the volatility of asset markets has a first-order effect on asset management revenues P&L, while it gets virtually no mention in the risk management literature.y The only paper close to ours is Scherer (2010). He first argues that market risks have a dominant effect on revenue volatility for large asset management companies with a well diversified client base.z For a sample of nine asset management firms and for a limited number of data points (eight annual data observations from 2000 to 2007 per firm), he uses various panel regression techniques to show that the revenue beta of asset management revenues is indeed one as initially conjectured.…”

Section: Introductionmentioning

confidence: 92%

“…We can use this formulation to test H O : i,up ¼ i,dn , which is the specification used by Scherer (2010). Table 2 summarizes the results.…”

Section: Market Datamentioning

confidence: 99%

“…In extension to Scherer (2010), we distinguish between up-and down-market exposures (betas). Initial calculations in the previous section have shown that the small sample (24 observations, 21 degrees of freedom) combined with volatile data proves to be a challenge for the statistical significance of each separate regression model.…”

Section: Econometric Modelmentioning

confidence: 99%

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Market risks in asset management companies

Scherer

2012

Quantitative Finance

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This paper shows that revenues from a sample of publicly traded US asset management companies carry substantial market risks. Not only does this challenge the academic risk management literature about the predominance of operative risks in asset management, it is also at odds with current practice in asset management firms. Asset managers do not hedge market risks even though these risks are systematically built into the revenue generation process. This is surprising as shareholders would not optimally choose asset management companies as their source of market beta. They rather prefer to participate in alpha generation and fund gathering expertise of investment managers as financial intermediaries. At the very minimum, asset managers need to monitor their 'fees at risk' to understand what impact product design, benchmark choice and fee contract design have on revenue volatility. This calls for a much wider interpretation of the risk management function that too narrowly focuses on client risks.

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Section: Introductionmentioning

confidence: 92%

“…We can use this formulation to test H O : i,up ¼ i,dn , which is the specification used by Scherer (2010). Table 2 summarizes the results.…”

Section: Market Datamentioning

confidence: 99%

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Market risks in asset management companies

Scherer

2012

Quantitative Finance

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“…More sophisticated approaches of evaluating the performance of asset managers or funds can be inferred from, for example,Illmer and Marty (2007) andHogan and Warachka (2008).15 Scherer (2010), for example, points to the (generally underestimated) importance of market risk for asset management revenues.…”

mentioning

confidence: 99%