Integrating performance & risk analysis within the investment process

By Jonathan Wiser | 2 June 2016


For many asset managers, there has been a conscious attempt to break down the barriers between performance, risk and investment groups, in a bid to relieve the information asymmetry between teams and improve the ways in which decisions are made. At TSAM Europe earlier this year, we caught up with Enrico Massignani, Head of Risk Management at Generali Investments, who shared his thoughts on this approach…

How well connected are your performance, risk and investment teams?

The connection has been growing through the years. It’s a matter of how the investment process is changing and the interaction is growing a lot.

In what stage in the investment process is performance and risk analysis integrated with an investment decision, and why is it like this?

We strongly believe that unless there’s a feedback loop, the process wouldn’t work very effectively. So we designed an investment process where this feedback loop continuously happens. This is at various levels - daily between portfolio managers (PMs) and portfolio risk officers, and then on a weekly basis between PMs/head of investments together with specialists within portfolio risk (where they review all the portfolios) and then finally an investment committee; during these sessions they discuss critical points and the investment side commit to mitigating action. That is then controlled through the feedback loop to the risk and performance teams.

What are the key benefits that you have experienced from this approach?

The key benefit is that people focus on the purpose and not simply on the numbers, text and discussing the process. They start talking the same language and both teams are actually going towards the same goal and are leveraging and exchanging their expertise. This synergy eventually impacts on portfolios.

How do you think the link between risk and performance teams will evolve within the industry as a whole?

I would say, on average, we are still in the process of getting risk and performance teams closer to portfolio managers. Industry-wide, we are not quite up to that situation, so this trend will continue. Because those who did that have a competitive advantage, so the remaining ones will fall. Going forward, they will be focusing more on different approaches of portfolio management because, in the coming years, all the models and approaches will leave ground to more behavioural approaches. The industry is acknowledging that this is making such a big impact on performances that is not captured by quant models of traditional theories.

What role do you think technology can play in aiding collaboration?

Technology actually removes the operational part. Technology allows seamless interaction between teams. In the past, having good numbers was the main target and the main point of discussion between teams was about whether this number was correct or not. Technology has improved that a lot, giving you sounder processes and figures so teams can focus on the content and the purpose, and not just on creating numbers, which was a strong bias for risk managers making sure the number was correct (as they feared discussions with PMs). The technology is smoothing out the relationship on this side.

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