Implied Return

ƒImplied Return – This represents the return a fund must deliver in order to justify the amount of risk it contributes to the overall portfolio. In economic terms, the implied return can be seen as the hurdle rate of the fund given its risk profile. Implied return can either use volatility or ETL as its risk measure. When using ETL Implied Return is equal to the STARR optimal portfolio (tail risk-adjusted return optimal) multiplied by each fund’s marginal contribution to ETL.

Investors who are required to select and monitor investment managers should develop a basic understanding of investment statistics. Quantitative tools can provide you with good insight that you can use in your qualitative interviews with managers and when monitoring your investments.