Reference core - Fundamental law
assuming an active risk of 6% (which many institutional investors would consider to be high), a transfer coefficient of 0.25 (representative of a constrained long-only investor), and an information coefficient of 0.10, the manager could expect to generate an active return of 15 bps yearly, on average, if she makes a single independent decision. If the manager wanted to achieve excess return of 1%, she would need to make approximately 40 fully independent decisions.
How 40 is calculated?
My answer 15 bp = 1 independent decision
100 bp = 100/15 = 7 approx.
