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Sell side
Sellers of financial services, such as banks
Wall Street is sell side
Buy side
Buyers, such as investors or funds
Investment management
Pension funds
Characteristic
Sell Side
Buy Side
Horizon
Short-term (days)
Turnover
Fast
Slow
Leverage
High
Low
Risk measures
VaR
Stress tests
Asset allocation
Tracking error
Risk controls
Position limits
VaR limits
Stop-loss rules
Diversification
Benchmarking
Investment guidelines
Active or passive
Evaluated with tracking error
Low transparency
Absolute risk
Aka asset risk
Total possible loss over a horizon
Relative risk
Measured by excess return relative to a
benchmark
Active risk
Total PnL from across all managers
Diversification will reduce active risk
10
11
Cash-flow risk
Variation of contributions to the fund
12
13
VaR tools
Marginal VaR, component VaR
Global custodian
Centralization of performance, reporting, risk
management
Custodians track positions and have market data
Provide forward-looking risk measures
Custodian industry dominated by few large
players
14
15
16