Financial Markets and Portfolio Management

, Volume 24, Issue 3, pp 309–320

A note on asset management and market risk

Perspectives

DOI: 10.1007/s11408-010-0137-7

Cite this article as:
Scherer, B. Financ Mark Portf Manag (2010) 24: 309. doi:10.1007/s11408-010-0137-7

Abstract

The textbook view on risk in asset management companies is summarized by Hull (Risk Management and Financial Institutions, p. 372, 2007): “For an asset manager the greatest risk is operational risk.” Using evidence from various panel regression models, we show that asset management revenues carry substantial market risks, a finding that challenges not only academic risk management literature on the predominance of operative risks, but also the current industry practice of not hedging market risks that are systematically built into the revenue-generation process. For asset management companies to return to an annuity model, these risks need to be managed more actively. Shareholders do not want to be exposed to market beta by investing in asset management companies; they want to participate in these companies’ alpha generation and take advantage of their fund-gathering expertise as financial intermediaries.

Keywords

Asset managementMarket riskPanel regressionCorporate finance

JEL Classification

G11C33G30

Copyright information

© Swiss Society for Financial Market Research 2010

Authors and Affiliations

  1. 1.EDHEC Business SchoolLondonUK