Posted by: Nicholas Davis | March 12, 2009

What fund managers think

A colleague and I spoke at a conference for fund managers today, presenting our scenarios on the future of the global financial system and talking about how scenarios relate to risk management. This is what I heard:

  • Fund managers don’t see a distinction between scenarios and forecasting, nor between risk and uncertainty (it was a short presentation, so we didn’t have time to go into this!)
  • Their existing risk models are fine, they just need more data and to use longer time horizons to capture volatility
  • The killer problem in a crisis is correlation of sectors and markets, which can’t really be hedged against effectively
  • They are highly skilled at devising strategies for a given scenario – but they spend most of their time “forecasting” that scenario, rather than thinking about other ones.
  • As my colleague pointed out, they spend a lot more time thinking about technical strategies than the macro-environment, quite the opposite to the CEOs we deal with in our other workshops.

Interesting. I need to consider this for our ongoing work on strategic options in responding to the crisis, both from a systemic and stakeholder view.


Responses

  1. ‘Fund managers don’t see a distinction between scenarios and forecasting’? No wonder! They probably are too busy thinking about the numerical gains in their portfolios to see the big picture. While forecasts give them numbers, scenarios could tell them why their forecasts could be plain wrong. But again, they probably don’t want to hear that!


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