Hi all!
I have a bit of confusion around specialist and balanced strategies.
It is first shown that a risk budgeting process should be performed to determine what the strategic benchmark is (and thus level of strategic risk) and also what the permissible level of active risk is. In terms of a specialist strategy, this process makes sense since the strategic allocations are determined and individual managers are appointed for each asset class. They also have some freedom to deviate from the strategic allocation (which gives rise to the tactical allocation) within the bounds of the active risk allowance.
However, in the case of balanced strategies, to put it simply, managers can allocate how they see fit. Does this mean that there is no risk budgeting process followed if a balanced strategy is chosen?
Or rather a risk budget process is still performed and managers are simply made aware of the limits (although they don't follow them)?
I have a bit of confusion around specialist and balanced strategies.
It is first shown that a risk budgeting process should be performed to determine what the strategic benchmark is (and thus level of strategic risk) and also what the permissible level of active risk is. In terms of a specialist strategy, this process makes sense since the strategic allocations are determined and individual managers are appointed for each asset class. They also have some freedom to deviate from the strategic allocation (which gives rise to the tactical allocation) within the bounds of the active risk allowance.
However, in the case of balanced strategies, to put it simply, managers can allocate how they see fit. Does this mean that there is no risk budgeting process followed if a balanced strategy is chosen?
Or rather a risk budget process is still performed and managers are simply made aware of the limits (although they don't follow them)?