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Edhec-Risk - May 13, 2005

Research for Business - an Interview with Noël Amenc

Interview with Noël Amenc, PhD, Professor of Finance, Director of the Edhec Risk and Asset Management Research Centre

Launch of the EuroPerformance-Edhec Style Ratings, development of a consulting activity on the organisation and management of risks (Edhec-Risk Advisory), partnership with the firm Lyxor AM (Société Générale group) to create the Edhec Investable Hedge Fund Indices, promotion of a consulting activity in asset allocation and the design of investment products (Edhec Investment Research). In the last two years, Edhec has engaged in multiple initiatives that are outside the traditional scope of academic research.

Noël Amenc, director of the Edhec Risk and Asset Management Research Centre, explains the reasons behind these unusual initiatives for a business school.


Noël Amenc

Why is Edhec not content to simply carry out academic research and why run the risk of venturing out into the business world?

Noël Amenc: Our centre’s capacity to bring innovative and operational solutions to industry players is the very basis of the strategy and the existence of the Edhec Risk and Asset Management Research Centre.

In a very competitive academic world, it is appropriate to differentiate oneself, to innovate and to develop competitive advantages. For Edhec, the key development and success driver is business.

We consider that the disciplines of management and research in finance only make sense if they are of use to companies. This is probably what distinguishes them from economics or other social sciences which can be content to remain in the academic domain alone. What use would we be if our research wasn’t used by companies?

We think that in the area of applying and transferring knowledge and technology between the academic world and the industry there is still a lot of inefficiency and Edhec has a real “arbitrage opportunity” in this area.

In concrete terms, how does Edhec intend to succeed in this role of facilitating the transfer of technology and knowledge?

Noël Amenc: We base this impact strategy on three principles:

  • Studying the conceptual and technical gaps that exist between the academic state-of-the-art in asset management and the practices. This idea leads us to carry out regular in-depth surveys on the practices of European investors and asset management firms;

  • Proposing innovative solutions that allow industry players to fill or take advantage of the gaps between knowledge and practice. Edhec only intervenes if it has something to contribute to the market, genuine value added. We move forward from a perspective of revolution/innovation which justifies turning to an academic institution. That is what led us to design a rating methodology integrating the measurement of managers’ alphas, because we felt that it was necessary to break with the poor practices of the investment fund ratings that do not distinguish between the share of the performance that is due to the manager’s skill and the share that comes from the chance of financial markets.

  • Finally, it is appropriate to establish relations of confidence with serious industry players who wish to do their job well. For example, it is truly fortunate and an honour to have been selected by Lyxor, who are the leading European firm in alternative index management, for the creation of the alternative diversification benchmarks.
Indeed, you are announcing the creation of the Edhec Investable Hedge Fund Indices. In what way is the creation of hedge fund indices a real innovation? You’re not the first!

Noël Amenc: We think that we are the first who haven’t thought up our indices in order to maximise the “in sample” performance but genuinely to construct allocation supports for which the betas are representative of the risks of the major alternative strategies.

We are not interested in trying to offer the best performance from the past, but the best betas.

Our investable indices are not funds of funds sold on a standalone basis. They are strategic investment supports that facilitate the implementation of dynamic inter-strategy allocation.

The first investable indices that can’t be bought!

Noël Amenc: Yes and no. Yes, because it is true that they are not sold. No, because they are used in the funds of funds of business partners whom we advise on implementing a new form of value added constituted by multi-style/multi-class allocation.

That is a major innovation in the FoHF industry which has been too attached to promoting absolute performance that comes more from statistical noise or a windfall due to the prevailing economic situation, to the detriment of betas whose diversity constitutes the major advantage of alternative investment. On the basis of our investable indices, we are working today on the transfer of technologies with major players in the European asset management industry. The launch in France on May 11th of the Edhec Equity and Bond Diversifiers managed by Lyxor, which bring together the Edhec Hedge Fund Diversifier Benchmarks, are the first step in Edhec’s determined strategy to promote its expertise in asset management.

Does ‘Research for Business’ mean that there is an intention to turn all of Edhec’s research into business?

Noël Amenc: The fact that we want our research to have an impact on the industry doesn’t mean that all the research is for sale.

On the contrary, thanks both to the centre’s sponsors and our consulting actions, we can continue to make all of the Edhec Risk and Asset Management Research Centre’s research freely available to all comers. Today, the www.edhec-risk.com web site and our newsletter are vectors of information that are recognised by the financial industry and we are very proud of that. We want to continue to invest and to disseminate our research and we think that the consulting activities will allow us to be even more relevant and pointed in our research work.

Isn’t there nonetheless a risk of conflicts of interest between your consulting and research activities?

Noël Amenc: Managing the risk of conflicts of interest is the logical consequence of our desire to be in the field and not simply commenting or criticising from “on high” with our academic status. Managing the coexistence of consultancy and research well requires not only distinct structures but also particular rules of governance:

  • Systematic information on the possible conflicts of interest between some of our research work and the position of one of the clients of the consulting activity;

  • Setting up a position of scientific director of the research centre in charge of validating the methods and results of each of the research programmes. This position is held by Professor Lionel Martellini;

  • Systematically submitting our research articles to the editorial boards of scientific journals;

  • Publication of all our research work and the results that underlie our consulting activities and justify our innovative approach with regard to the market.
To complete this disposition, which is based on transparency and scientific rigor, we have set up an international advisory board this year which is independent from the management of the centre. This board, which is made up of senior professionals from the asset management industry, validates the centre’s major orientations and research results. The Edhec Risk and Asset Management Research Centre’s International Advisory Board is chaired by Mr Jean-François Lepetit, former president of the Commission des Opérations de Bourse (the French SEC).