vendredi 10 septembre 2010

Enacting the Efficient Frontier. How interpretive devices shape the choice of a portfolio manager

Communication at the 7th Pan European Conference on International Relations ("Politics in Hard Times: International Relations Responses to the Financial Crisis"), held in Stockholm (Sweden) on September 8-11 2010.

Financial asset managers trade securities on capital markets on behalf of different kinds of other investors who have given them a discretionary mandate to do so. While some investors may think that mutual funds and asset management services are basic and convenient ways of saving money and making profit out of it, other investors expect asset managers to make more out of their savings and capital than they would have done themselves. Asset managers provide a risky service in the sense that one cannot forecast with full certainty the returns that their investment decisions will earn. Hence, investors are confronted to the question of the quality of asset management services. How do finance professionals and investors judge the performance of asset managers?

Nowadays, the modern portfolio theory (MPT) dominates the asset management industry, as can be evidenced by the regulatory obligation of indicating a benchmark for each UCITS III fund or by the widespread use of MPT compatible ratios and metrics for the measurement of portfolio performance, such as Sharpe ratios or tracking errors.

Using ethnographic data, I argue that MPT consistent calculation practices have not made their way in the asset management industry by the sole power of their intrinsic adequacy to a transcendental reality outside economic agents. Instead, symbolic instruments build a structure that is guiding and constraining action at the same time. The investment decisions made by asset managers’ clients rely directly or indirectly on devices, metrics, formulae, graphical frames, models and statistical figures among other things. Indeed, the actors who have an interest in the analysis of asset managers outcomes interact with material and immaterial artefacts. These measurement tools and interpretative devices at large (they need not be only calculative) create a frame that helps them compute and process the information that they obtain from meetings with asset managers or from other sources. Interpretative devices help finance professional deal with the uncertainty that is inherent to the investment activity. These devices also contribute to the rationalisation and institutionalisation of different attitudes towards the future. In the end, I wish to demonstrate that the practical domination of the MPT is the result of a symbolic work that has been done by ordinary agents of everyday finance and that has been institutionalised in the major interpretative devices of contemporary finance.

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