With so much volatility going on in the region, and in fact, in the world, investors are doubly cautious in the choice of investments they make. In assessing risk, what are the factors that need to be considered before making any investment decision? In the age of technology and volumes of data, where does ‘intellect’ fit in?

1. Risk-adjusted
performance
measurement
requires
‘intellectual
firepower’
by Darwin Jayson Mariano
I
n dealing with risk-adjusted performance or risk-
adjusted return, there are five principal risk
With so much volatility going on in the region, measures to consider: alpha, beta, r-squared,
and in fact, in the world, investors are standard deviation and the Sharpe ratio. Each
doubly cautious in the choice of investments risk measure is unique in how it measures risk.
they make. Will it be in stocks or bonds? In comparing two or more potential investments,
an investor should always compare the same risk
Could be both. What percentage goes to each measures to each different investment in order to
basket and how much yield one expects to get get a relative performance perspective.*
are now based on a whole host of factors,
primary of which is measuring return by In our interview with Madhu Gayer, Head of Invest-
ment Reporting and Performance - Asia Pacific
taking into account the risks involved in
for BNP Paribas Securities Services, he identified
producing that return – what we call, the main challenges in risk adjusted performance
risk-adjusted performance measurement. measurement and according to him this can be
summed up in three significant
factors – data, methodologies and people.

2. “ The question we need to ask is
O
f the three factors described above, perhaps
the most important and most critical factor is
do people dealing with risk- people. In our interview with Madhu Gayer,
adjusted performance measure- he weighed in on this: “I think it all comes down to
ment have the intellectual fire- people. The question we need to ask is do people
dealing with risk-adjusted performance measure-
power, the training, the world ex- “ ment have the intellectual firepower, the training,
perience to convert the numbers the world experience to convert the numbers into
meaningful information for boards, trustees, asset
into meaningful information. managers and CEOs to act upon.
- Madhu Gayer,
BNP Paribas Securities Services In his current role, (Editor’s note: Madhu Gayer is a
newly appointed APAC head of investment report-
ing and performance for BNP Paribas Securities
Services), Madhu spoke about his own challenges.
DATA
When thinking about risk- “The challenges that I’m seeing my clients face are
adjusted performance and more on the region of how to cope with the systems,
risk-adjusted returns, suddenly you how to cope with the data and how to cope with the
have to think a lot more about the data elements reporting as well. Where do they get the information
and where the systems are actually built in order from, how do they present it, and how do people
to cope with the enormous needs. The influx of actually make use of the numbers so that they can
data that comes from multiple sources could be get informed decisions out of the numbers.”
massive and adequate systems must be put in
place to be able to crunch these numbers and get Reeling from the aftermath of the global recession
meaningful information out of it. caused by, some would argue, wanton disregard of
risks in making billions of dollars of investments, in-
vestors these days would better be served if a per-
fect balance of risk and return would be achieved
through a great deal of intellect.
METHODOLOGIES
Different organizations have Hear more from Madhu Gayer as he speaks about
different methodologies and there’s Overcoming key challenges in risk adjusted performance
at the Investment Performance and Risk Management
no single best method that can be
(IPARM) Asia 2013.
applied across all organizations.
Moreover, there’s always new methodologies, new To attend the conference, send an email to
risk statistics coming up all the time. The important enquiry@iqpc.com.sg or call +65 6722 9388.
You can download the event brochure here.
thing is that one must have an established set of
practices and standards to follow in order to make
the whole process smooth and efficient.
About IPARM Asia 2013:
The Investment Performance and Risk Management (IPARM)
Asia 2013 conference is the ONLY gathering of investment risk
and performance professionals in Asia. This year’s theme: Utilise
best performance measurement, attribution and risk-
PEOPLE management practices to maximise your portfolio return.
Our 2013 Distinguished Speakers include top executives from
Typically, you can categorize this BlackRock Asset Management, BNP Paribas Securities Services,
group as either performance people AXA Investment Managers Asia, Aberdeen Asset Management,
BNY Mellon Asset Management, among others.
or risk people. Whatever group
they belong, what’s important is for
these people to have the right mastery of the data, About the Author:
Darwin Jayson Mariano is an Online Content Strategist and the
tools, methods that are available to them and use
Regional Editor - Asia for International Quality & Productivity
it to further the interests of every Center (IQPC). You can contact him on Twitter @whoisdarwin or
stakeholder involved. email darwin.mariano@iqpc.com.sg
*http://www.investopedia.com/terms/r/riskadjustedreturn.p#axzz2DTrtW8jf