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State Street Global Advisors: Measuring Macroeconomic Risks for Portfolio Management

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5 March 2021

Winner of Celent Model Risk Manager 2021 Award for Data, Analytics, and AI

Abstract

State Street Global Advisors wanted the ability to monitor macroeconomic risks on its portfolios because it recognized the importance of understanding macroeconomic exposures for portfolio risk management, optimized portfolio construction, stress testing, and return attribution. They achieved this by projecting the fundamental factor returns against a set of macroeconomic factors and formulating a new macroeconomic model. This effort avoided the need to build a separate model from scratch, which can be operationally costly. It ensured that the adjusted model is aligned with fundamental models already in use. It also solved the key challenges of joint estimation of models that contain potentially highly correlated macro and fundamental factors. Development and implementation of the solution was facilitated by the active involvement of the vendor Qontigo.

Click on the video link below to watch a conversation between Tom Bilbe, Vice President Portfolio Management at State Street Global Advisors, and Arin Ray, Senior Analyst with Celent's Risk practice; Celent Risk research members can download the PDF of a detailed case study.

Video

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