Whose risk counts?

doi:10.1017/CBO9781139565516.020

16 - Whose risk counts?

Published online by Cambridge University Press: 05 April 2014

Raj Thamotheram and

Aidan Ward

Edited by

James P. Hawley ,

Andreas G. F. Hoepner ,

Keith L. Johnson ,

Joakim Sandberg and

Edward J. Waitzer

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Raj Thamotheram: Affiliation:
Network for Sustainable Financial Markets
Aidan Ward: Affiliation:
Organizational Systems Consultant
James P. Hawley: Affiliation:
St Mary's College, California
Andreas G. F. Hoepner: Affiliation:
ICMA Centre, Henley Business School, University of Reading
Keith L. Johnson: Affiliation:
University of Wisconsin, Madison
Joakim Sandberg: Affiliation:
University of Gothenburg
Edward J. Waitzer: Affiliation:
York University, Toronto

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Summary

In the expectations market the goal is to make a trade in which you have the upper hand, no matter what the impact is on the other party.

Roger Martin (2011: 32)

Of all imaginary organisms – dragons, gods, sea monsters … – economic man is the dullest.

Gregory Bateson (1987: 175)

This makes investors focus on returns without paying sufficient regard to the risks that are being taken to achieve these returns. Rarely do funds make their principal focus risk-adjusted return.

(Towers Watson 2012: 13)

Introduction

The title of this chapter points to a deep unease the authors have about the workings of the investment industry. In an industry where the size of one’s “risk appetite” is a marker of one’s virility, where the biggest brains are drawn to interpreting the subtleties of the movements of markets, the dominant belief is that it is right that outsized financial rewards should go to those who deliver alpha (and clients). Our hypothesis is that, in this context, some simple and common sense truths about risk are ignored.

Here are some generalizations about the investment industry. In an industry where herd behavior is prevalent, the exceptions validate these norms.

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Type: Chapter
Information: Cambridge Handbook of Institutional Investment and Fiduciary Duty , pp. 207 - 221

DOI: https://doi.org/10.1017/CBO9781139565516.020 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2014

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