Once again FactSet will be attending a two-day conference hosted by GARP (the Global Association of Risk Professionals) from February 28-29. We hope to see you there!

This year we wanted to share with you the Top 3 Sessions we're looking forward to most this year at the GARP Annual Risk Management Convention. 

1. In the keynotes this year, we were intrigued to see two presentations that seem to piggy-back off one another.
   
   They are The Wall Street Monolith Myth and Medium Term Prospects for Enhanced Financial Stability. The reason I'm intrigued is the first presentation discusses what it was about Bear Stearns corporate culture and process that made it fail while Goldman succeeded. The following presentation with the less interesting title has the distinction of being led by none other than Gerald Corrigan of Goldman Sachs. 
   
   Kidding aside, however, after what must be years of research, what does author William Cohan have to say about the avoidable mistakes that Bear Stearns made?Also, from an investor perspective and a managerial perspective what did it take for big banks like Goldman to outlast the conditions of 2008-2009?
    
2. The next session that caught my eye was Stress Testing: Computability and Emergent Phenomena. The most interesting point that Professor Timur Gok, who will lead the session, will discuss is whether you can truly manage risk with a "rearview approach." In short, can looking back truly be an effective way to move forward? I'd say yes, in the sense that we can only learn to mitigate risk from looking at the likely investment conditions it creates. And while looking at past crises to anticipate the shock of current ones is by no means a perfect solution, it is one that gets us as close as we can get (short of being fortune tellers) to anticipating the impact of a market shift. Stress testing also has the honored distinction of being deemed valuable to be required by many new accounting standards such as Dodd-Frank.
    
3. Finally, Geo/Political Risk Amidst World Turmoil rounds out our top three sessions. This session is likely to be a packed session, considering all we've seen from Europe. I'm particularly interested in hearing about how diversifying on a country basis may now pose unwanted risks. The session, led by Daniel Alpert of Westwood Capital, will also focus on the impact that politics has on the market. It's an extremely relevant topic for the eurozone where several heads of state must agree to come to any resolution. And also, where austerity measures have caused a wide range of reactions in Greece and elsewhere.

More on the Annual Conference agenda.

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Recently on FactSet's podcast, we spoke with Laurence Wormald, Head of Research for Sungard APT. In our conversation we discuss one of the topics most on risk managers minds today: the ongoing crisis in Europe.

In our podcast, we asked how investors can gauge expected results from a possible Euro breakup, default of one of the GIIPS countries, and other scenarios for the troubled eurozone. Hear the episode here, or read the recap.

Want more on Eurozone risk? Register for our webcast, Managing Risk in Uncertain Times, with FactSet's Steve Greiner as he discusses how currency risk can increase in tumult-afflicted GIIPS-country companies and discusses options for measuring portfolio risk in multi-currency Eurozone fallout scenarios.

Related Links:

FactSet's audio podcast with Laurence Wormald

Recap of our interview with Wormald

Registration link for free webcast: Managing Risk in Uncertain Times

This week's blog was contributed by guest blogger, Joseph Mezrich, Managing Director and Head of Quantitative Strategies at Nomura Securities International. Mezrich joins FactSet as a keynote speaker at this year's U.S. Investment Process Symposium.

A Conversation with Joseph Mezrich

What was the biggest surprise for fundamental managers during the credit crisis?

In 2007 and 2008 fundamental managers were unaware that value measures (that is to say buying value stocks) were often proxies for credit risk. Many investors were buying cheap stocks because they seemed to be the best buy for the money, but in the credit crisis they were actually priced like junk bonds.

Throughout the past decade, off and on, there are reasons to buy stocks or use particular strategies, but there are always underlying risks that investors aren’t aware of.

How were quants impacted by the crisis?

The famous quant crisis of August 2007 was, in many ways, less important than the fact that momentum was crushed during the crisis, particularly in late 2009. As momentum fell and factors behaved in new and unexpected ways, quants saw their strategies fail. It was only in late 2010 that quant strategies began to fully recover.  Fortunately for the quants, their strategies continued to perform increasingly well throughout 2011, particularly if you look at the aggregate results. 

What challenges have pointed out the strengths and weaknesses of relative strategies?

There’s been a lot of media coverage about stock correlation last year. Stock correlation was very high throughout 2011, and fundamental managers who rely on stock picking saw the worst year in more than a decade. With high correlations it didn’t matter how skilled of a stock picker you were, upswings and downswings in the market hit you harder as stocks rose and fell together. To contrast, strategies that go beyond stock picking, like quantitative strategies, have fared much better. A portfolio of factor-based strategy was better insulated against high correlation, so we saw a reversal of fortunes for quants.

What is your advice for investors given the market trends we saw in late 2011?

There are several high profile examples of people trying to figure out what’s going to work in the new market conditions. In the past year, correlation has been more a problem than volatility, though both contributed to poor performance. What caught people off guard was the inability to diversify and the inability to deal with market direction or volatility. You have to build into your strategy some methods for achieving these ends. One piece of advice to gravitate towards factor strategies. As important is having some form of risk management. Finally, you have to guard against the diversification problem, that is to say, a lack of diversity in your overall investment universe.