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Morningstar, Inc Reports Fourth-Quarter, Full-Year 2020 Financial Results
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Morningstar, Inc Reports Fourth-Quarter, Full-Year 2020 Financial Results
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Covid-19 prompts buy-side rethink on stress tests and risk integration
17 Feb 2021
The panel
Pascal Traccucci, Global Head of Risk, La Française Asset Management
Christopher Reeve, Director of Risk, Aspect Capital
Moderator: Julien Jarmoszko, Management Consultant
Boryana Racheva-Iotova, FactSet
The global Covid-19 pandemic is changing the risk management vocabulary and toolkit for investors of all stripes. With the outbreak’s early months rocking markets to their core, the world’s largest asset managers and institutional investors saw their investment processes and risk frameworks tested in ways even the financial crisis that began in 2007–08 did not fathom.
The pandemic did not happen in a vacuum, though. In fact, many risk teams view the events of 2020 as an accelerated and more intense version of movements already afoot on the buy side – towards broader quantification of exogenous, extreme events, and more sophisticated risk assessments being plugged into the p
precisely where we are in the market cycle?
The challenge, according to Ben Inker, head of Asset Allocation at GMO is that the United States has never had these levels of monetary and fiscal stimulus at the same time. This gives low risk assets lower return expectations, but sends high risk assets soaring. There are obvious signs of froth Gamestop, Bitcoin, Tesla, et. al., but even “small cap value” caught a bid. Inker believes we are clearly in an asset bubble, which he blames on Fed policies.
The legendary Boston-based institutional investment firm manages about $60 billion in assets. During Dotcom implosion, GMO’s US Aggressive Long/Short Strategy achieved 80+% cumulative net returns for their clients.
Article content
The 40-year bull run in bonds has had a profound impact on how people view the role fixed-income securities play as a risk-management tool when it comes to portfolio construction. As far back as I can remember, bonds have been touted as the best way to diversify against equities. Even regulators, zeroing in on the investment policy statements that disclose a client’s ability and willingness to take on risk, directly measure that risk appetite against the proportion of bonds a client holds.
Using bonds as a risk-management proxy has worked exceptionally well because interest rates, after peaking in 1981, have trended lower for the greater part of the past four decades. This decline came amid huge technological innovations that streamlined operations and manufacturing along with the scaling of connectivity via the internet resulting in the digitization of the global economy, putting disinflationary pressure on the global economy. Central banks have also been very ac
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