Equity investment management firm Axa Rosenberg has found a coding error in its risk modelling program which led it to significantly under-represent common-factor risks.
In a letter to clients on its Web site, the firm says it discovered the snafu last June and fixed it between September and November.
However, it acknowledges the incident was not reported in a "complete and timely manner" leading founder Barr Rosenberg to take a 30-day leave of absence while a review is conducted. In addition, Thomas Mead, director of the company's research centre, has indicated he will resign within a year.
The error affected the scaling of inputs from the company's risk model into its portfolio optimiser. This meant that common-factor risks were "significantly" under-represented, leaving optimisation to rely on other controls.
Axa Rosenberg claims it is extremely difficult to determine whether the mistake had "significant impact on portfolio performance" but it has bought in external experts to assess the situation