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EDHEC-Risk Executive Education
Executive Education - March 22, 2012

Analysing Sovereign Risk for Portfolio Management Decisions Seminar - Overview

12-13 June, 2012 - London

A seminar providing an overview of the historical background and the recent trends of sovereign risks, as well as an analysis of sovereign risk in bond portfolios, and discussing both the assessment and the monitoring of sovereign risk in a global equity portfolio.


Following the financial crisis, a sharp deterioration in public finances across advanced economies following the financial crisis and coupled with meagre GDP growth rates are raising investor concerns about sovereign risk. These concerns will only be compounded further in future through high fiscal deficits and rising pension and health care costs. In the face of both recent events and of this challenging outlook, the question of how to assess and monitor the sovereign risk exposure of either a bond portfolio or an equity portfolio has become the focus of an increasing number of investors.

Heavily relying on the broadly accepted ratings from the main rating agencies has led academics and industry research to investigate alternative sources of information on sovereign risk. However, the recent launch of new sovereign bond and equity portfolio strategies has left investors with open questions, such as why sovereign risk matters in investors’ portfolio management decisions? What are the risk exposures of both standard and new sovereign risk strategies? How is a portfolio with controlled sovereign risk exposure constructed? Is there an active way to manage sovereign risk exposure?

For investors who already have a high exposure to sovereign risk, either through the government bond part of their investment portfolio or through their sources of income (or the source of the plan’s sponsor income), it may be of interest to reduce the sovereign risk exposure of their portfolios. Likewise, if investors believe that sovereign risk exposures are under-rewarded at current prices, they have a motivation to avoid such exposures in their portfolios. In addition, given the global nature of sovereign risk, an investor who is exposed to sovereign credit risk of a specific country cannot expect to fully avoid this risk by investing in securities traded in other countries. Therefore, it becomes necessary to construct indices with a low exposure to any sovereign risk.

Drawing on the expertise developed at the EDHEC-Risk Institute, the first part of the seminar will provide participants with an overview of the historical background and the recent trends of sovereign risks, as well as an analysis of sovereign risk in bond portfolios. The second part of the seminar discusses both the assessment and the monitoring of sovereign risk in a global equity portfolio.

The programme is intended for investment management professionals who advise on or participate in the design and implementation of portfolio construction models, and for sell-side practitioners who develop new portfolio construction solutions for investors. The seminar will also be insightful for investment professionals who analyse or decide on the adoption of appropriate model portfolios or benchmarks for bond and equity investments or who are interested in customising their strategic benchmark.


Seminar Instructors:

  • Felix Goltz, Head of Applied Research, EDHEC-Risk Institute
  • Fahd Rachidy, Senior Quantitative Financial Analyst, EDHEC-Risk Institute
  • Thierry Roncalli, Head of Research and Development at Lyxor Asset Management


Key Learning Benefits:

The seminar will enable participants to:

  • Review the history of sovereign risk and its recent developments and understand how sovereign risk impacts markets; discover the new forms of sovereign bond and equity indices.

  • Understand the limits of rating agencies’ approach to assess default risk of sovereign issuers and find out how to use market-based information to assess sovereign credit risk.

  • Analyse the sovereign risk exposure of both bond and equity portfolios and find out if alternative weighting schemes provide better information on sovereign risk exposures.

  • Learn how to manage sovereign risk through a risk-budgeting approach.

  • Find out if standard country classification approaches of equity indices can be improved by taking into account sovereign risk exposure, comparing geographical sovereign risk exposure versus place of listing.

  • Discover if standard equity factor models such as the Fama-French model can be improved by taking into account the relevant sovereign risk factor and assess the impact of using a regional factor versus a global factor.

  • Learn the state-of-the-art techniques in constructing bond and equity portfolios with controlled sovereign risk exposure and learn about the differences in cross-sectional exposure to sovereign risk; find out how to actively manage the sovereign risk exposure of a global equity portfolio.

CFA Institute Continuing Education Credits:

As a participant in the CFA Institute Approved-Provider Programme, EDHEC-Risk Institute has determined that this programme qualifies for 13 credit hours. If you are a CFA Institute member, continuing education credit for your participation in this programme will be automatically recorded in your CE Diary. Please see www.cfainstitute.org/ceprogram for more information.


Analysing Sovereign Risk for Portfolio Management Decisions Seminar: