Survey finds investment managers not heeding risk in portfolio construction

Investment managers do not fully take into account extreme risks when constructing portfolios, according to a 'call for reaction' survey of financial services professionals by EDHEC Business School.

This emerged as a key finding of a call by France-based EDHEC Business School for responses to its original survey, EDHEC European Investment Practices Survey 2008.

This survey found that current practice in the industry fails to draw on widely-published and freely-available techniques in portfolio management.

EDHEC issued the 'call for reaction' to its survey, asking for explanations and ways to improve portfolio construction from the industry.

Ninety five per cent of the practitioners who responded to the call for reaction share EDHEC’s opinion that improvements need to be made to portfolio construction practices.

The ‘call for reaction’ asked respondents for reasons behind the insufficient application of portfolio construction research and for ways out of the current situation.

Another key finding of the responding industry professionals was that the level of knowledge within their profession was a major barrier.

'Poor input estimation' was another key reason industry professionals fail to employ techniques that avoid generating overly-concentrated portfolios.

Yet another reason was that further education and effort on the part of investment managers are required to close the gap between real-word practice and academic research.