Gra^s Excess Returns ------ Cumulative Gross Excess Return FIGURE 25.4 GSAM AIMR-Compliant GTAA Composite, October 1996 to October 2002 Some argue that IR is not the best metric to compare managers, especially traditional managers, because as they take more risk, their information ratio declines. However, the use of derivatives in GTAA means that there are few natural boundaries on position sizes or directions, unlike traditional security selection strategies where net shorts or extremely large positions are both more costly and less readily employed. Therefore, the IR on a GTAA portfolio should be relatively unaffected by targeted active risk.23 Fortunately for clients, GTAA active risk is not highly correlated with other sources of active risk. Table 25.5 demonstrates the low correlation of four GTAA managers with other traditional asset class managers.24 Over the six-year period from 1996 to 2001, the correlation of these GTAA managers' active risk with the active risks of traditional managers was quite low, averaging only 0.01 across the major asset classes. This correlation is particularly low in light of the average correlation between manager active risks within asset classes of 0.20. Only domestic and international fixed income show average active risk correlations above 0.10, from which we infer that GTAA managers were taking duration bets similar to fixed income managers over this period. Correlations across GTAA managers appear to be low also. The correlation of GSAM's GTAA performance history is only 0.03 with the other GTAA managers. Is GTAA Suitable for All Investors? We believe GTAA is suitable for almost any institutional portfolio. However, clients that understand the importance of removing unintended risks, the use of derivatives, risk budgeting, and risk management most appreciate GTAA's benefits. The ^Notwithstanding any client-imposed constraints like range constraints or no net shorts. 24The traditional manager data are from Nelson's institutional manager database. We thank Dmitri Smolyanski at General Motors Investment Management Company for the database of GTAA managers.