Benchmarks and Attribution Analysis by Christopher G. Luck, Thomas M. Richards, Kevin Terhaar,

By Christopher G. Luck, Thomas M. Richards, Kevin Terhaar, Jeffrey V. Bailey, Wayne A. Kozun, Lee N. Price

Funding functionality, even if of portfolios or person managers, can't be evaluated with no functionality yardstick (i.e., a benchmark); in spite of the fact that, identifying the inaccurate benchmark might be as harmful as bad portfolio administration. The authors during this lawsuits talk about what constitutes a suitable benchmark, how one can decide on applicable benchmarks, and the way to behavior attribution research, either hazard and go back.

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Org • 37 The Integration of Risk Budgeting into Attribution Analysis Wayne A. Kozun, CFA Vice President, Tactical Asset Allocation and Real Return Assets Ontario Teachers’ Pension Plan Board North York, Ontario Risk budgeting, defined as the allocation of tracking error among the different asset classes of a fund, is a complex task but a valuable tool. In adopting a risk-budgeting system, the plan sponsor must define the risk to be budgeted, determine a methodology to calculate the risk, and juggle the issues involved with implementation.

As long as we have data on those bonds, we can use them to price our liabilities. The problem is that in Canada, we have had them only since 1991.

This system of risk budgeting allows us to assign active risk in a quantifiable, standard way for all asset classes in our portfolios. As a result, we can consistently apply risk to domestic equity, fixedincome, and currency overlay portfolios as well as to hedge fund or hedge-fund-type portfolios that run long–short strategies. We manage the bulk of our assets internally, and our compensation plan is based on the return a manager earns on his or her allocated risk, which can be a significant amount—in some instances, in excess of 100 percent of salary.

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