UTAM

The Globe has a revealing piece on University of Toronto Asset Management. Surely this is a debate throughout North America:

• are previous asset management methodologies no longer tenable?
• were 2008 returns predictable or within model expectations?
• do we fully appreciate risk?
• in an effort to make finance more quantitatively elegant have we made assumptions that are unrealistic?

Basically, is the model broken?

While I think we all recognize that many assumptions in our models are unrealistic, the real question is do we adjust for it? Are we equipped to interpret the data provided by our risk management systems and then make the mental adjustment for where we intuitively realize the risks in our portfolio exist?

In your organization: does management really understand the numbers put out by the risk system and do they know the limitations of said numbers?