Ethical Use of Quantitative Models in Asset Management

Very Hard Asset Manager Code Investment Process

As a portfolio manager at a large asset management firm, you are tasked with overseeing a diverse array of investment strategies, including equity, fixed income, and alternative investments. Your firm follows the Asset Manager Code (AMC) to ensure that investment processes are structured and conducted with integrity and transparency.

During a recent investment committee meeting, the discussion turned to the implications of using quantitative models to aid in investment decision-making. Some committee members raised concerns regarding the potential for model bias and lack of transparency in the model's underlying assumptions. As the lead portfolio manager, you are responsible for addressing these concerns while adhering to the AMC's principles.

Which of the following actions best aligns with the requirements of the AMC, specifically concerning transparency and the investment process?

Utilize a proprietary quantitative model without disclosing its underlying assumptions to clients, as this information is considered sensitive.

Implement regular reviews and stress testing of the quantitative models to ensure their robustness and disclose the rationale behind key assumptions to clients.

Only use the quantitative model when it provides favorable outcomes for the portfolio, disregarding its limitations during adverse conditions.

Hint

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