Regulatory Alerts2022-10-31
AFM Research on Expected Returns and Risks
The Dutch Authority for the Financial Markets (AFM) investigated 18 investment firms and found significant discrepancies in their expected long-term gross returns for neutral portfolios, ranging from 2.7% to 7%. These divergent assumptions lead to vastly different projected end capitals for investors, raising concerns that some expected returns are unrealistic and may result in unmet client expectations. While risk measurement methods are more consistent, primarily using standard deviation, the AFM emphasizes the need for realistic assumptions and better alignment between portfolio characteristics and risk calculations.
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