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EDHEC-Risk - July 28, 2006

Interview with Noël Amenc, Director of the EDHEC Risk and Asset Management Research Centre

With a productive academic year in terms of publications and other initiatives coming to an end at the EDHEC Risk and Asset Management Research Centre, we discussed the centre’s activities and strategy for the future with Noël Amenc, PhD, Professor of Finance, Director of Research at EDHEC Business School, and Director of the Edhec Risk and Asset Management Research Centre.

Noël Amenc

What were the highlights of the centre’s activities for the academic year 2005-2006?

Noël Amenc: 2005-2006 served to emphasise the research we carry out in areas other than hedge funds. Because our hedge fund-related research and initiatives have enjoyed such success, the international financial community tends to see us as a centre that is specialised in that domain, when in fact less than a quarter of our research work is devoted to it.

We have strengthened our collaboration with EuroPerformance on the measurement of alpha in traditional funds and, with the launch of the Alpha League Table, we have created the first European classification system for asset management companies, based on their capacity to provide alpha in the world of equities.

This initiative, which was covered by the Financial Times, as well as Les Echos, Global Investor and Funds Europe, enables EDHEC to be associated over the long-term with an asset class that is essential to institutional and private investors. This year also saw another initiative in the world of stocks, with a study into the quality of the major stock market indices being carried out in association with the Association Française des Investisseurs Institutionnels (AF2I) and with support from UBS Global Asset Management and BNP Paribas Asset Management. It will be presented in September, and we expect that there will be a considerable amount of reaction for an area that is sensitive given the importance of indices in the construction of the benchmarks used by European institutional investors.

This year was also marked by further efforts in our research on ALM (Asset Liability Management), in particular developing a theoretical framework for the use of the LDI (Liability Driven Investment) solutions available on the market. We felt that such a conceptualisation was necessary given the fact that all too often there is a tendency to oppose these solutions to more traditional approaches based on surplus optimisation. When designed as liability hedging portfolios, LDI solutions can be seen as a risk-free asset (in the sense that they provide a perfect match for liability flows) as part of an optimal strategic allocation that takes account of investors' performance requirements and their aversion to the risk of not respecting their liability constraints.

But 2005-2006, with more than 800 people attending the EDHEC Hedge Fund Days in London, the success of the Lhabitant Martellini seminar and the development of the CAIA preparatory courses, was also very hedge fund-oriented?

Noël Amenc: The aim to extend our research to all dimensions of asset management is not incompatible with our position as a reference in the field of hedge fund research. It is a question of having the means to achieve this dual ambition.

With 33 people involved in the EDHEC Risk and Asset Management Research Centre and partnerships with major players in the international asset management industry, we believe that in the coming years we will continue to be the research centre that is best in touch with the concerns of asset management professionals in Europe.

How are you planning to respond to the concerns of professionals in 2006-2007?

Noël Amenc: The 2006-2007 academic year will be full of initiatives. We will be promoting the research work and achievements that we have been investing in over the last two years. Without being completely exhaustive, I could cite the publication of a study supported by AXA IM on the impact of the IFRS/Solvency II rules on the financial management of European insurance companies, the completion of a survey sponsored by Barclays Global Investors/iShares on the role and use of ETFs in the core-satellite investment process of European investors and managers, and a study on the evaluation of the quality of the concepts and financial management of the Fonds de Réserve pour les Retraites (FRR).

To highlight the results of our research, we will be organising two major events in 2006-2007. The EDHEC Institutional Days, combined with the ETF Summit, which will take place in Paris on November 21st and 22nd, 2006 and the EDHEC Asset Management Days, which we will be presenting in Geneva on March 12th and 13th, 2007.

These events will be the opportunity to present the possible applications of the academic research conducted both by our research centre and by our American and European colleagues to both institutional investors and asset managers or private bankers.

EDHEC’s ability to ensure that these conferences are truly relevant events for the industry is a strategic challenge that we intend to take up with the help of our business partners, more and more of whom are supporting us each year. I can already announce that thanks to the support of Pictet, we will be able to present the results of original research on the implementation of a genuine ALM approach in private wealth management.

Responding to the concerns of professionals also means worrying about whether the research can be applied and as such I attach considerable importance to the success of our consultancy activities, carried out within the framework of the offerings from EDHEC Risk Advisory and EDHEC Investment Research. For example, they allowed us to be at the cutting edge of the enquiry into the consequences of MiFID for the sell side and the buy side in the asset management industry, as demonstrated moreover by the publication next September of the first book devoted to the subject, MiFID: Convergence Towards a Unified European Capital Markets Industry, co-written by one of our professors, Catherine D'Hondt, and Jean-René Giraud, CEO of EDHEC Risk Advisory.

Today, the variety of the consultancy missions carried out and the products and services designed by EDHEC Investment Research allows us to refine research needs in the area of dynamic allocation, and the implementation of separated management of portfolio betas and alphas permitted by the success of the core-satellite organisation of investment management.

If 2006-2007 is the opportunity to present the results of the investment in research carried out over the last two years, how will 2006-2007 also help to prepare the research centre’s future over the next few years?

Noël Amenc: Apart from continuing our efforts on the research themes, we are going to invest heavily in new themes, notably in real estate, which to our mind has not been given enough attention. Above all, the concepts of real estate have not been clarified when it comes to considering it as a standalone strategic allocation class.

The question of reverse ALM and the design of optimal liabilities is also an area in which we will be investing heavily in the research centre, in partnership with our economist colleagues, because one of the first applications of the research will be the optimal design of sovereign debt.