Short positions throwing a wrench in the works for traditional (long-only) institutional investors
Jul 17th, 2008 | Filed under: Performance, Analytics & MetricsThe addition of short positions to traditional long-only portfolios adds a whole new dimension of complexity and requisite analytics. This was true for mutual funds (see related postings) and is even more relevant for traditional (long-only) institutional investors.
We stumbled across this article by BNY Mellon’s fund administration arm that reveals some of this complexity. The paper argues in favour of a holistic approach to portfolio risk analytics – an approach not always followed by institutional investors according to the firm:
“Many institutional clients, lured by the promise of additional returns at a risk discount, are jumping into these more complex alpha-generating strategies — many for the first time and many without reviewing the exposures and risks. Additionally, many of these short-enabled funds don’t have a long history of incorporating shorts into the overall portfolio strategy and may be introducing unintentional risks. In fact, many funds are outsourcing the short portion, resulting in two asset management teams working separately without understanding the total account makeup.
“…When aggregating and viewing a short-enabled account’s structure and fundamental makeup, we must combine the long and short market values instead of looking at the long and short portions separately.”
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[...] What will happen to 130/30 managers when shorting becomes more difficult? (All About Alpha) [...]
Also see this article, called Falling Short, from Risk magazine’s June edition.