Explanation:

Weight of the portfolio managed by manager i = $\frac{\text{IR}_i}{\text{IR}_p} \times \frac{\text{portfolio's TEV}}{\text{manager's TEV}}$

For manager 2,

$\text{Weight of portfolio} = \frac{0.4 \times 0.04}{0.72 \times 0.08}$

Thus, the optimal allocation for Manager 2 is:

$\frac{0.4 \times 0.04}{0.72 \times 0.08} \times \`$ 300,000,000 = \ $83`,333,333$

Q.2504 A pension fund wants to allocate `$300` million to a pool of active managers so as to maximize the information ratio of the fund subject to an overall tracking error volatility (TEV) of 4%. The table below provides more information:

TEV Information Ratio
Manager 1 6.0% 0.60
Manager 2 8.0% 0.40
Index 0.0% 0.00
Portfolio 4.0% 0.72

Assuming that the excess returns of the managers are independent of each other, the optimal allocation for Manager 2 is equal to:

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Last updated: July 5, 2026 at 07:07

$80,000,000

$83,333,333

$270,000,000

$33,330,000

Financial Risk Manager Part 2