EDHEC has an ambitious international research policy to become an academic institution of reference for the industry in a small number of areas in which it has reached critical mass in terms of expertise and research results. Among these areas, asset and risk management have occupied privileged positions, leading to the creation in 2001 of the EDHEC Risk and Asset Management Research Centre. Now boasting a team of 32 permanent professors, engineers, and support staff, and 18 research associates, it has established itself as Europe’s largest and most influential centre for applied financial research.

Implementing the school’s ‘Research for Business’ philosophy, the EDHEC Risk and Asset Management Research Centre conducts world-class academic research and highlights its applications to the industry.

In the context of six industry-sponsored programmes and five corporate-endowed chairs, the Centre’s team of 40 researchers carries out a wealth of projects focusing on asset allocation and risk management in the traditional and alternative investment universes. The scientific quality and operational relevance of these research activities are guaranteed by the Centre’s dual management structure—the Centre is jointly headed by a director and a research director—and by the oversight exercised by the leading experts serving on its international advisory board.

In keeping with its mission, the Centre systematically seeks to validate the academic quality of its research through publications in leading scholarly journals, implements a multifaceted communications policy to inform investors and asset managers on state-of-the-art concepts and techniques, and forms business partnerships to launch innovative products.

To optimise exchanges between the academic and business worlds, the EDHEC Risk and Asset Management Research Centre maintains a website devoted to asset management research for the industry, circulates a monthly newsletter to over 150,000 practitioners, conducts regular industry surveys and consultations, and organises annual conferences attended by over 2,000 institutional investors and asset managers from some 40 countries.

Organised by the executive education arm of the EDHEC Risk and Asset Management Research Centre, the PhD in Finance at EDHEC Business School will not only enjoy the full support of the Centre in terms of access to research resources and industry relations but also benefit from the remarkable creative atmosphere the Centre creates for faculty and course participants.

EDHEC Risk and Asset Management Research Centre: The Choice of Asset Allocation

Lionel Martellini, PhD, Professor of Finance, EDHEC Business School, Scientific Director, EDHEC Risk and Asset Management Research Centre

In the brave new world of asset management, astute investors dynamically allocate their funds between a core of index-linked vehicles and actively managed satellites encompassing alternative investments. While the core of the portfolio closely tracks a benchmark representative of the investor’s strategic asset allocation, satellite funds are given leeway to extract non-traditional betas and work as alpha-factories. Formerly centre stage, stock picking survives at the periphery as an activity entrusted to an elite cadre of managers who consistently beat the market on a risk-adjusted basis. In this new environment, hard numbers rather than relationships dictate how investors allocate funds across multiple managers and thorough reports on risks and performance have accordingly become a must.

It is against this backdrop, that the EDHEC Risk and Asset Management Research Centre has decided to structure all of its work around asset allocation, thereby putting the collective expertise of its permanent staff and research associates at the service of key needs of financial institutions and investors.

This strategic choice is applied to all of the centre’s research programmes, whether they involve putting forward new methods of strategic allocation that span traditional and alternative investments; measuring the performance of funds while controlling for the tactical allocation dimension of the alphas; identifying biases in existing indices and designing superior instruments for benchmarked asset allocation; taking extreme risks into account in the allocation process; using derivatives to implement active portfolio strategies and replicate indices; or improving asset-liability management techniques.

EDHEC Risk and Asset Management Research Centre: Six Research Programmes and Five Research Chairs

Research programmes and chairs involve close partnerships with their financial sponsors and a commitment from the EDHEC Risk and Asset Management Research Centre to publish related articles in international academic journals and to organise the dissemination of research results in the investment management profession through wide distribution of practitioner-oriented publications and presentation at industry conferences.

Six Research Programmes

• Asset Allocation and Alternative Diversification
  Sponsored by SG Asset Management and NewEdge

  The research carried out focuses on the benefits, risks, and integration methods of the alternative classes in asset allocation. From that perspective, EDHEC is making a significant contribution to research in the field of multi-style/multi-class portfolio construction. In particular, EDHEC research has advanced non-parametric risk estimation methods and extended the Bayesian approach to portfolio construction in the presence of preferences about higher moments of return distributions. The programme includes the "Financial Engineering and Global Alternative Portfolios for Institutional Investors" research chair.

• Performance and Style Analysis
  A business partnership with EuroPerformance (Telekurs Financial)

  The scientific goal of this programme is to adapt the portfolio performance and style analysis models and methods to tactical allocation and to new forms of investment. Research looks at performance evaluation in traditional classes (investigating SRI or analysing long-only fund rating methods) and at performance measurement in the hedge fund universe (implementing dynamic factor models). The programme has led to the EuroPerformance EDHEC style ratings and the IPE-EDHEC Institutional Asset Management Awards.

• Indices and Benchmarking
  Sponsored by Af2i, Barclays Global Investors, BNP Paribas Investment Partners, NYSE Euronext, Lyxor AM, and UBS Global Asset Management

  This programme has involved extensive research on indices and benchmarks in the hedge fund universe and in more traditional investment classes. Its main focus is on analysing the quality of indices and the criteria used by institutional investors to choose indices. In response to criticism of the lack of representativeness of hedge fund indices, EDHEC also proposes a proprietary method of style index construction. In 2003, EDHEC launched the first composite hedge fund strategy indices. Current research revisits modern portfolio theory to develop new approaches to building efficient benchmarks for equities.

• Asset Allocation and Derivatives
  Sponsored by Eurex, SGCIB, and the French Banking Federation

  This research programme focuses on the use of derivative instruments for portfolio management and on dynamic asset allocation methods in the contexts of asset management and asset-liability management. It includes the “Structured Products and Derivative Instruments” research chair.

• Best Execution and Operational Performance
  Sponsored by CACEIS, NYSE Euronext, and SunGard

  This programme deals with best execution and the issue of operational risk. Research into operational risks has led to the development of a causal model of hedge fund failures. Work on best execution is allowing EDHEC to develop a complete framework for measuring transaction costs known as EBEX (for Estimated Best Execution). The programme includes the “MiFID and Best Execution” research chair.

• ALM and Asset Management
  Sponsored by BNP Paribas Investment Partners and AXA Investment Managers

  This programme concentrates on the application of recent research in the area of asset-liability management for pension plans and insurance companies. The research centre is working on the idea that improving asset management techniques and particularly strategic allocation techniques has a positive impact on the performance of asset-liability management programmes. The programme includes research on the benefits of alternative investments, such as hedge funds, in long-term portfolio management. Particular attention is paid to the institutional context of ALM and to the impact of the IFRS and the Solvency II Directive. It also aims to develop an ALM approach addressing the particular needs, constraints, and objectives of private banking clients. This programme includes the “Regulation and Institutional Investment” and the “Asset-Liability Management and Institutional Investment Management” research chairs.

• Regulation and Institutional Investment in partnership with AXA Investment Managers

  The chair investigates the interaction between regulation and institutional investment management on a European scale and highlights the challenges of regulatory developments for institutional investment managers.

• Asset-Liability Management and Institutional Investment Management in partnership with BNP Paribas Investment Partners

  The chair examines advanced Asset-Liability Management topics such as dynamic allocation strategies; rational pricing of liability schemes; and formulation of an ALM model integrating the financial circumstances of pension plan sponsors.

• MiFID and Best Execution in partnership with NYSE Euronext, SunGard, and CACEIS Investor Services

  The chair looks at two crucial issues linked to the Markets in Financial Services Directive: building a complete framework for transaction cost analysis and analysing the consequences of market fragmentation.

• Structured Products and Derivative Instruments sponsored by the French Banking Federation (FBF)

  The chair investigates the optimal design of structured products in an ALM context and studies structured products and derivatives on relatively illiquid underlying instruments.

• Financial Engineering and Global Alternative Portfolios for Institutional Investors sponsored by Morgan Stanley Investment Management

  The chair adapts risk budgeting and risk management concepts and techniques to the specificities of alternative investments, both in the context of asset management and asset-liability management.

EDHEC Risk and Asset Management Research Centre: Constant dialogue with the industry

To maximise exchanges between the academic and business worlds, the EDHEC Risk and Asset Management Research Centre conducts regular industry surveys and consultations and produces practitioner-oriented documents presenting its results, organises annual conferences for the benefit of institutional investors and asset managers, maintains a website devoted to asset management research for the industry, circulates a monthly newsletter to over 150,000 practitioners worldwide, and has established working relationships with key media groups. To help institutions take full advantage of the research advances it engineers, the Centre provides consulting and executive training services and enters into business partnerships and joint-ventures.

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