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Alternative Investments - February 14, 2008

Interview with Jim Dilworth

In this month's interview, we speak to Jim Dilworth, head of Morgan Stanley Investment Management Europe, Middle East and Africa (EMEA), about the MSIM EDHEC research chair in financial engineering and global alternative portfolios for institutional investors and the current and future challenges for MSIM's business.

Jim Dilworth

Why has Morgan Stanley Investment Management chosen to endow EDHEC’s research chair in financial engineering and global alternative portfolios for institutional investors?

Jim Dilworth: EDHEC is a recognised leader for asset management and alternative investment research. As MSIM endeavours to meet investors’ needs through the development of innovative alternative investment options, we believe that EDHEC will provide the independent view necessary to identify what truly are the best investment options in the current market environment and how to ensure that risks are managed appropriately.

The chair represents a monetary investment by Morgan Stanley Investment Management over three years. Do you think that this is a risky investment in the current market context?

Jim Dilworth: Quite the contrary. Our investment in this research chair is essential to be able to fully understand and meet investors’ needs in this market environment. It is ever more important to understand how to take advantage of market inefficiencies and upside potential while mitigating risks inherent in new investing practices.

The projected research theme for the first year of the chair is "Alternative Investments for Institutional Investors - Risk Budgeting Techniques in Asset Management and Asset-Liability Management." Is this a theme that corresponds to the concerns of your clients?

Jim Dilworth: Yes, clients are looking for separation of alpha and beta. On the one hand they focus on optimal management of factor exposures within a core portfolio so as to generate access to rewarded risk factors, and on the other hand they focus on alpha generation within a satellite portfolio in an attempt to add skill-based performance benefits to further enhance the portfolio performance. This search for alpha can be achieved through new investment strategies like hedge funds, commodities, private equity and direct real estate. And, while these investment strategies are useful in the performance seeking portfolio where they can potentially bring alpha and beta benefits, it is important to assess their impact on relative and absolute risk budgets.

You have a new group within Morgan Stanley Investment Management called Global Portfolio Solutions. Could you tell us a bit more about this activity?

Jim Dilworth: Global Portfolio Solutions is an exciting new concept at MSIM. We first established it in July of last year to offer a consultative approach to our institutional clients around the world. We build strategic partnerships with investors whereby we can bring our intellectual power and global resources to bear to help them navigate the increasingly complex set of portfolio management challenges they face, including liability hedging, measurement of embedded data, emergence of new risk factors, expanded investment opportunities and the requirement for higher and more consistent returns.

GPS offers integrated pension solutions, portfolio construction and architecture, customized portfolio management, overlay strategies, transition management and structuring, and client reporting and risk factor analysis.

What are the main challenges that Morgan Stanley Investment Management will be facing over the next few years?

Jim Dilworth: Certainly the current market environment and the need to develop innovative investment options are challenges that all assets managers face. Morgan Stanley takes a long term view on the asset management business. We have focused on repositioning MSIM for growth during the past two years and a lot of these changes will benefit us as we face these challenges head on. We offer a diverse array of equity, fixed income and alternative investments, including merchant banking strategies. We expanded our global footprint, hired talent and developed new products. In 2007 alone we developed 74 new products. Going forward we will continue to strive to identify not only new and innovative products, but also to provide outstanding long-term investment performance. Our business model is a strong community of boutiques supported by a global platform that leverages the resources of Morgan Stanley. This boutique culture gives portfolio managers the freedom to identify new strategies but it also means that the portfolio teams’ performance is tied to the performance of the money they manage and ensures that they are incentivised to perform for our clients.

About Jim Dilworth

Jim Dilworth is the head of MSIM Europe, Middle East and Africa (EMEA). He joined Morgan Stanley in 2007 and has 27 years of industry experience. Prior to joining the firm, Jim was head of Goldman Sachs Asset Management and Private Wealth Management in Germany, where he also established and led GSAM’s pensions advisory group. Prior to this, Jim has held various senior asset management positions including responsibility for business development, product development, trading and portfolio management at Bankers Trust Company and The Chase Manhattan Bank. Jim studied business administration and finance at the University of Southern California, Los Angeles.