This paper by MSCI creates a framework in order to answer the question: given a portfolio of managers, how does the active risk of each manager relate to the active risk of the portfolio?
Asset owners often measure manager risk (the active risk of each manager) and have difficulty relating it to the contribution each manager makes to the multi-manager portfolio. MSCI says it is important that the analysis of the multi-manager portfolio be coherent with the analysis of each manager in isolation.
In order to achieve this, the paper defines and calculates manager risk contribution as the product of manager weight, manager risk and the correlation of the manager’s active return with the active return of the entire portfolio.
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