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.