EDHEC-Risk - EDHEC-Risk Institute PhD in Finance

EDHEC-Risk Institute PhD in Finance - About EDHEC-Risk Institute

The Support of a Leading Research Institute

Noël Amenc, PhD, Director, EDHEC-Risk Institute, Professor of Finance and Associate Dean for Development, EDHEC Business School

EDHEC Business School 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, investment and risk management have occupied privileged positions, leading to the creation in 2001 of EDHEC-Risk Institute. Now boasting a team of sixty-six permanent professors, engineers, and support staff, and twenty-three research associates and affiliate professors, it has established itself as Europe’s largest and most influential academic centre for industry-relevant financial research.

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

In the context of six industry-sponsored programmes and eleven corporate-endowed chairs, its team of sixty-six 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 Institute's dual management structure—EDHEC-Risk Institute 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, EDHEC-Risk Institute 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, EDHEC-Risk Institute maintains a website devoted to asset management research for the industry (www.edhec-risk.com), circulates a monthly newsletter to over one million practitioners, conducts regular industry surveys and consultations, and organises annual conferences attended by over 2,300 institutional investors and asset managers from more than forty countries.

Organised by the executive education arm of EDHEC-Risk Institute, the PhD in Finance programme not only enjoys the full support of EDHEC-Risk in terms of access to research resources and industry relations but also benefits from the remarkable creative atmosphere it creates for faculty and course participants.

EDHEC-Risk Institute: The Choice of Asset Allocation and Risk Management

Lionel Martellini, PhD, Scientific Director, EDHEC-Risk Institute, Professor of Finance, EDHEC Business School

Asset management is justified as an industry by the capacity of adding value through the design of investment solutions that match investors’ needs. For more than fifty years, the industry has focused on security selection as its greatest single source of added value. This narrow focus has kept a key source of added value—portfolio construction and asset allocation decisions—largely out of view. In the wake of recent crises, and given the intrinsic difficulty of delivering value through security selection, the relevance of the old paradigm has been questioned with heightened intensity.

A new paradigm is starting to emerge, which recognises that the art and science of portfolio management consists of constructing dedicated portfolio solutions, as opposed to one-size-fits-all investment products, so as to reach the investor’s return objectives, while respecting the investor’s risk budgets. In this broader context, asset allocation and portfolio construction decisions take centre stage.

Academic research has provided very useful guidance to the ways these decisions should be approached so as to best improve investors’ welfare. The ‘fund separation theorems’ that lie at the core of modern portfolio theory advocate separate management of performance and risk-control objectives. In the context of asset allocation decisions with consumption or liability objectives, the suitable expression of the theorem provides support for the liability-driven investments (LDI) techniques that have recently been promoted by a number of investment banks and asset management firms. These solutions involve, on the one hand, the design of a customised liability-hedging portfolio, the purpose of which is to hedge away as effectively as possible the impact of unexpected changes in risk factors affecting liability values, and, on the other hand, the design of a performance-seeking portfolio, whose raison d’être is to provide investors with an optimal risk/return trade-off.

In this context, one should distinguish two different levels of asset allocation decisions: decisions involved in the design of better building blocks, i.e. design of the performance-seeking and the liability-hedging portfolios, and decisions related to the optimal split between these building blocks. While the LDI paradigm is now widely adopted in the institutional world, very few market participants implement it in a way that is fully consistent with the state-of-the-art in academic research.

Asset allocation and portfolio construction decisions are intimately related to risk management since the quintessence of investment management is about finding optimal ways to spend risk budgets, with a focus on allowing the greatest possible access to performance potential while respecting such risk budgets. Risk diversification (key to design better benchmarks for performance seeking), risk hedging (key to design better benchmarks for hedging), and risk insurance (key to design better dynamic asset allocation benchmarks for long-term investors facing short-term constraints) are three useful approaches to optimal spending of investors’ risk budgets. Each of these represents a hitherto largely unexplored potential source of added value, and all three can be combined to design better investor solutions.

It is in these particularly exciting times of paradigm change in the financial industry that EDHEC-Risk Institute has launched a PhD in Finance programme. Its goal is to equip exceptional individuals with the conceptual and technical tools needed to meet the challenges for which the investment banking and investment management industries must be prepared.

EDHEC-Risk Institute: Six Research Programmes and Fourteen Research Chairs and Major Strategic Research Projects

EDHEC-Risk Institute's research programmes and corporate-endowed research chairs explore interrelated aspects of asset allocation and risk management to advance the frontiers of knowledge and foster industry innovation.

Asset Allocation and Alternative Diversification

The research carried out focuses on the benefits, risks, and integration methods of the alternative classes in asset allocation and makes significant contributions to the field of multi-style/multi-class portfolio construction. In particular, EDHEC-Risk Institute 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 “Advanced Modelling for Alternative Investments” research chair, in partnership with Newedge Prime Brokerage, the “Exploring the Commodity Futures Risk Premium: Implications for Asset Allocation and Regulation” strategic research project, in partnership with CME Group, and the “Structured Equity Investment Strategies for Long-Term Asia Investors” strategic research project, in partnership with Société Générale Corporate & Investment Banking.
Performance and Style Analysis

This programme aims to adapt the portfolio performance and style analysis models and methods to tactical allocation and to new forms of investments. Research looks at performance evaluation in traditional classes–investigating socially responsible investing or analysing rating methods for long-only funds–and at performance evaluation in the hedge fund universe—implementing dynamic factor models. The programme has led to a business partnership with SIX Telekurs and to the offering of the EuroPerformance-EDHEC style ratings, a service measuring the quality of active management in the European fund management industry.
Indices and Benchmarking

This programme involves two aspects of research into indices and benchmarks in traditional and alternative investment. The first aspect looks at the quality of indices, the criteria institutions use to select them, and revisits modern portfolio theory to develop innovative approaches to constructing new forms of indices in the traditional and alternative universes. As such, EDHEC-Risk Institute has proposed a proprietary method of style index construction for the alternative universe and launched the first composite hedge fund strategy indices in 2003. In 2010, EDHEC-Risk Institute, on the basis of its research results in the area of index and benchmark construction, set up a spin-off, EDHEC-Risk Indices & Benchmarks, the goal of which is to make available to investment industry professionals new forms of indices and benchmarks that genuinely add value in terms of both being efficient and representative of risks.

The second aspect of this research programme examines the use of index products in the core-satellite approach to investment management. This programme includes the “Core-Satellite and ETF Investment” research chair, in partnership with Amundi ETF.
ALM and Asset Management

This programme concentrates on the application of recent research in asset-liability management (ALM) for institutional, high net worth, and retail investors. EDHEC-Risk Institute is working on the idea that improving asset management and strategic allocation techniques has a positive impact on the performance of ALM programmes. It devotes particular attention to the institutional context of ALM and to the impact of International Financial Reporting Standards and the Solvency II directive project on European pension funds and insurance companies. It also aims to extend the realm of ALM to address the particular needs, constraints and objectives of sovereign wealth funds, the private banking clientele, and mass-affluent investors. This programme includes the “Regulation and Institutional Investment” research chair, in partnership with AXA Investment Managers, the “Asset Liability Management and Institutional Investment Management” research chair, in partnership with BNP Paribas Investment Partners, the “Dynamic Allocation Models and New Forms of Target-Date Funds” research chair, in partnership with La Française AM, the “Asset-Liability Management Techniques for Sovereign Wealth Fund Management” research chair, in partnership with Deutsche Bank, “The Case for Inflation-Linked Corporate Bonds: Issuers’ and Investors’ Perspectives“ research chair, in partnership with Rothschild & Cie, the “Advanced Investment Solutions for Liability Hedging for Inflation Risk“ research chair, in partnership with Ontario Teachers’ Pension Plan, and the “Solvency II Benchmarks” research chair, in partnership with Russell Investments.
Asset Allocation and Derivative Instruments

This research programme focuses on the use of derivative instruments for portfolio management and on dynamic asset allocation methods in asset management and asset-liability management. Key themes include the optimal design of structured products, the role of structured products and derivatives in asset allocation, ‘passive’ replication of ‘active’ hedge fund indices through portfolios of derivatives, and structured products and derivatives on underlying instruments that are illiquid or lack liquidity. This programme also led EDHEC-Risk Institute to promote a new approach to measuring current volatility on the equity markets which no longer relies on the options market. This programme includes the “Structured Products and Derivatives Instruments” research chair, sponsored by the French Banking Federation, and “The Benefits of Volatility Derivatives in Equity Portfolio Management” strategic research project, in partnership with Eurex.
Operational Risks and Performance

The financial crisis has been synonymous with a transfer of a portion of investor risk towards the providers of investment and related services. The difficulties that third-party fund management has experienced in the areas of asset security, pricing and compliance with regulation, suggest that this shift in the responsibilities of those involved in fund management will have a significant impact on the profit and loss accounts not only of the fund management firms but also of all the service providers who are associated with them. Against this backdrop, this research programme aims to identify the operational risks that parties to the fund management industry bear as a result of their practices and of regulations, assess the importance of these risks and their impact on the parties’ solvency and business models, and propose means of mitigating these risks. The programme includes the “Risk and Regulation in the European Fund Management Industry” research chair, in partnership with CACEIS.

EDHEC-Risk Institute: Constant dialogue with the industry

To maximise exchanges between the academic and business worlds, EDHEC-Risk Institute 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 one million practitioners worldwide, and has established working relationships with key media groups. To help institutions take full advantage of the research advances it engineers, the Institute provides executive training services and enters into business partnerships and joint-ventures.