Barra Upgrades Risk Analysis

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Byline: Phillipa Leighton-Jones

Barra, a Californian firm that makes risk management systems for fund managers, has improved its global portfolio management system that managers use to measure risk and return in their fixed-income portfolios.The new system offers bond managers access to enhanced risk models including new European credit spreads and market-implied ratings, expanded coverage of US and European bonds and new credit indices.

Barra's risk analysis has been developed by a group of 20 PhDs working in Berkeley, California, who develop models according to client feedback. Last year Barra spent 18% of revenue on this research and development. Jean-Martin Aussant, director of product strategy for fixed income, is responsible for collecting client feedback in Europe and ensuring the Berkeley models are applied to the systems, according to his clients' needs.

The academic research conducted at Berkeley is published without intellectual property protection, so while Barra turns the research into a product, its competitors can also factor Barra's risk models into their systems.

Aussant, a former portfolio manager, says the Barra risk models have become industry standard. They were created by the firm's founder, Barr Rosenberg, who was also the eponymous co-founder of Axa Rosenberg, the fund management firm. Barra's analyses are based on a multiple factor approach to risk. This identifies sources of risk, such as credit and political risk, and calculates the effect of the interaction between them. …