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INDUSTRY’S EVALUATION OF MODELING TOOLS

A recent study by The Intertek Group9 tried to assess how the use of financial modeling in asset management had changed over the highly volatile period from 2000 to 2002. Participants in the study included 44 heads of asset management firms in Europe and North America; more than half were from the biggest firms in their home markets.

The study found that the role of quantitative methods in the investment decision-making process had increased at almost 75% of the firms while it had remained stable at about 15% of the firms; five reported that their process was already essentially quantitative. Demand pull and management push were among the reasons cited for the growing role of models. The head of risk management and product control at an international firm said,

“There is genuinely a portfolio manager demand pull plus a top-down management push for a more systematic, robust process.” Many reported that fund managers have become more eager consumers of modeling. “Fund managers now perceive that they gain increased insights from the models,” the head of quantitative research at a large northern.

European firm commented. In another finding, over one half of the participants evaluated that models had performed better in 2002 than two years ago; some 20% evaluated 2002 model performance to be stable with respect to the previous two years while another 20% considered that performance worsened. Performance was widely considered to be model-dependent.

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Among those that believed that model performance had improved, many attributed better performance to a better understanding of models and the modeling process at asset management firms.

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