Event Shortfall – Investment Risk Realised

Investors make portfolio allocation decisions for a wide array of reasons. For example, a pension plan may choose to implement a strategic asset allocation change as a result of an asset-liability study. Whatever the reason for the change in investment allocation, delay in implementation will invariably impact returns. Empirical evidence from State Street’s transition team shows that the delay between client investment decision and selection of a transition manager can run into several months and in extreme cases over a year. Current calculations of investment risk will tend to consider investment exposure relative to a benchmark once the portfolio restructuring is complete. Event Shortfall considers that investment risk starts at the point of decision. Measuring risk in this way implies that asset owners are running unrewarded and un-mandated risks for considerable periods of time and are often paying explicit fund management fees for the delivery. Our webinar explains the background to Event Shortfall, considers some of the practical implications of measuring and managing these risks, and reflects on the viewpoint of industry figures.