EDHEC-Risk Institute and CACEIS launch new research chair on risk assessment and performance reporting
CACEIS and EDHEC-Risk Institute have announced the creation of a new research chair at EDHEC-Risk Institute entitled “New Frontiers in Risk Assessment and Performance Reporting.” This new three-year chair will follow on from the previous CACEIS research chair at EDHEC-Risk Institute on “Risk and Regulation in the European Fund Management Industry.” Led by Professor Noël Amenc, Director of EDHEC-Risk Institute, and Professor Lionel Martellini, Scientific Director of EDHEC-Risk Institute, the research chair team will examine new advances in risk measurement and reporting. The goal is to explore, for the benefit of institutional investors and asset managers, both new concepts and innovative applications of concepts that are popular in the investment world.
EDHEC-Risk Institute welcomes distinguished new members to its international advisory board
EDHEC-Risk Institute is pleased to announce that three new members have joined its international advisory board, which brings together distinguished scholars, representatives of regulatory bodies as well as senior executives from business partners and other leading institutions. The role of the international advisory board is to validate the relevance and goals of the research programme proposals presented by the centre’s management and to evaluate research outcomes with respect to their potential impact on industry practices. The 40 members of the board also advise on the objectives and contents of projects deriving from the expertise of the research centre, thereby ensuring that graduate and executive programmes remain at the forefront of developments in the marketplace.
Debates on key regulatory topics and presentation of latest EDHEC-Risk Institute research at the EDHEC-Risk Asia Days conference in Singapore, May 15-16, 2013
Debates on the governance and transparency of indices and risks and regulation in the Asian investment industry will be high on the agenda of the EDHEC-Risk Days Asia 2013 conference at The Ritz Carlton in Singapore on May 15-16 next. Roundtables involving leading industry representatives and regulators will address the topics of the Governance and Transparency of Indices and Developing and Reforming Pension Systems in Asia on Day One and Day Two of the conference. The conference will also feature the latest EDHEC-Risk Institute research on a range of topics that are currently relevant for the financial industry.
Official opening of scientificbeta.com, the first multi-strategy platform for smart beta investing
As of April 22, 2013, EDHEC-Risk Institute has inaugurated its new smart beta index design and production activity, ERI Scientific Beta. This activity aims to revolutionise the index world through, firstly, a new approach to smart beta investing called Smart Beta 2.0, which enables investors to choose and control the risks of these new benchmarks, and secondly, total transparency on the methodologies and compositions of the indices available on the platform. Through its ‘More for Less’ initiative, ERI Scientific Beta intends to promote a more transparent and efficient index market for the benefit of investors. As such, ERI Scientific Beta is taking initiatives that are at odds with those of traditional index providers, by supplying information on its flagship smart beta indices free of charge, allowing investors to choose and control the risks of their smart beta investment, and, finally, by not asking institutional investors for fees on assets under management (AUM) to replicate its indices.
EDHEC-Risk Institute study illustrates that short-term risk control is not incompatible with long-term investment performance
A new study produced as part of the BNP Paribas Investment Partners research chair on “Asset-Liability Management and Institutional Investment Management,” provides comprehensive insights into all of EDHEC-Risk Institute’s research on dynamic allocation in asset-liability management. The publication, “Hedging versus Insurance: Long-Horizon Investing with Short-Term Constraints,” demonstrates that failing to separate long-term risk-aversion and short-term loss-aversion may lead to poor investment decisions. As an illustration, the research points to a 32% opportunity cost when managing maximum drawdown constraints inefficiently through an excessive level of hedging.
EDHEC-Risk Institute: UCITS hedge funds underperform their non-UCITS rivals, shows new study
This new research is drawn from the Newedge research chair on “Advanced Modelling for Alternative Investments” at EDHEC-Risk Institute. UCITS hedge funds are typically more volatile and underperform their non-UCITS hedge fund rivals, a new comprehensive comparative study by the EDHEC-Risk Institute has found. The finding, also show that the domicile of a fund is an important indicator of a fund’s likely performance with European domiciled funds delivering lower risk-adjusted returns compared to funds domiciled in other regions. The EDHEC-Risk Institute study, which examined an aggregate hedge fund dataset that consisted of more than 24,000 unique hedge funds, is one of the most comprehensive analyses of the performance and risks of UCITS hedge funds and non-UCITS hedge funds undertaken in recent times.
EDHEC-Risk’s annual European ETF Survey confirms satisfaction levels and investor approval of ESMA guidelines
EDHEC-Risk Institute has announced the results of the EDHEC European ETF Survey 2012, which represents a comprehensive survey of 212 European ETF investors. The survey was conducted as part of the Amundi ETF research chair at EDHEC-Risk Institute on “Core-Satellite and ETF Investment.” Among the key findings of the 2012 survey: ETFs remain the favourite choice of investors for passive investment, in spite of the controversies surrounding the use of ETFs in 2011/12. Satisfaction levels remain high (equity ETF satisfaction rates have been consistently in the region of 90%), and there has been an increase in the use of ETFs for corporate bonds, infrastructure and real estate. Demand for innovation is high in different asset categories, with 49% of respondents seeking development of emerging market equity ETFs, and there is also demand for new forms of indices, such as ‘smart beta’ ETFs, which seek to generate superior risk-adjusted returns compared to standard market-capitalisation-based equity indices.
Smart Beta 2.0 – Taking the risks of new equity benchmarks into account
In research published today entitled, “Smart Beta 2.0,” EDHEC-Risk Institute is seeking to draw the attention of investors to the risks of traditional smart beta equity indices and propose a new approach to smart beta investing to take account of these risks. This new approach, referred to as “Smart Beta 2.0,” enables investors to measure and control the risks of their benchmark and revolutionises the offerings of advanced equity benchmarks. In their study, Noël Amenc, Felix Goltz and Lionel Martellini show that Smart Beta 1.0 indices present systematic and specific risks that are neither documented nor explicitly controlled by their promoters. This inadequate level of information and of risk management calls into question the robustness of the performance presented and implies considerable risk-taking that is not controlled by investors when they choose new equity benchmarks. In order to deal with this situation, EDHEC-Risk Institute recommends that the choice of systematic risk factors for smart beta benchmarks be clearly explicit. This choice should be made by the investor and not by the index promoter.
Benchmarks: EDHEC-Risk Institute warns against the false promises of governance
Transparency key to informed decision-making and mitigating conflicts of interest. In the context of the ongoing regulatory debate on financial benchmarks and the recent consultations by the International Organisation of Securities Commissions (IOSCO) and the European Securities and Markets Authority (ESMA)/European Banking Authority (EBA), EDHEC-Risk Institute wishes to underline that transparency is both crucial to allowing users to assess the risks, relevance and suitability of indices and the most powerful tool to mitigate conflicts of interests existing across the indexing industry. EDHEC-Risk Institute is concerned that discussions pertaining to define an “adequate level of transparency” and balance the needs of index users with the purported necessities of confidentiality or intellectual property protection may result in a framework that falls short of providing users with the information they need to discharge their due diligence responsibilities (at a reasonable cost or at all). Against this backdrop, EDHEC-Risk Institute cautions regulators against the temptation to trade lower levels of transparency against stronger governance mechanisms or stricter codes and standards. Because the latter have too often proven ineffective at ensuring good behaviour or protecting the interests they are expected to defend, they can at best support transparency and at worst exacerbate moral hazard and adverse selection phenomena.
EDHEC-Risk Institute Study Highlights the Inefficiency of Asian Stock Market Indices
In a study entitled “Assessing the Quality of Asian Stock Market Indices,” researchers at EDHEC-Risk Institute have reported results for 10 major Asian stock market indices over the past decade. Among the key findings of the study: All indices analysed display a pronounced lack of efficiency, in the sense of providing an efficient risk-reward trade-off: for all of them, an equal-weighted index constructed from the same components outperforms the corresponding cap-weighted market index. The levels of inefficiency of Asian market indices were found to be quite comparable to those of European and US indices. The standard Asian indices are heavily concentrated in a few large-cap stocks. Most indices allocate as much as 60% of the index weight to only one-fifth of the stocks in the universe. For investors who are interested in holding well-diversified equity portfolios, one can see these results as a motivation to explore whether more appropriate alternatives can be developed.
EDHEC-Risk Institute Survey confirms investor dissatisfaction with corporate bond indices
In a survey entitled ‘Reactions to “A Review of Corporate Bond Indices: Construction Principles, Return Heterogeneity, and Fluctuations in Risk Exposures”’ researchers at EDHEC-Risk Institute have analysed industry reactions to a previous EDHEC-Risk study on corporate bond indices and confirmed that investors are dissatisfied with the indices currently on offer. Among the main findings of the survey: Only 41% of respondents are satisfied or very satisfied with corporate bond indices, a level which confirms that current corporate bond indices do not meet investor needs. The instability of corporate bond indices’ risk factor exposures was affirmed by the majority of respondents. Between 64% and 80% of respondents agree or strongly agree that the instability of interest rate risk exposure is problematic.
Debates on key regulatory topics and presentation of latest EDHEC-Risk Institute research at the EDHEC-Risk Europe Days conference in London, March 26-27, 2013
Debates on the governance and transparency of indices and European reform proposals for pension fund management will be high on the agenda of the EDHEC-Risk Days Europe 2013 conference at The Brewery in London on March 26-27 next. Roundtables involving leading industry representatives and regulators will address the following topics on Day One and Day Two of the conference: "Governance and Transparency of Indices", and "How Should Pension Fund Management be Reformed in Europe? Beyond the New IORP Directive".
EDHEC-Risk Institute Reiterates its Warnings to the European Commission on the Inadvisability of Imposing a Tobin Tax
In an open letter to European Commission President, José Manuel Barroso on January 30, 2013, Professor Noël Amenc, Director of EDHEC-Risk Institute and Professor of Finance at EDHEC Business School, has reiterated EDHEC-Risk Institute’s opposition to a ‘Tobin’ or financial transactions tax (FTT). Research findings from EDHEC-Risk Institute and other academic institutions show that the theoretical arguments in support of the FTT as a measure to reduce volatility are, at best, mixed; the empirical evidence, on the other hand, indicates that a FTT has either no effect on volatility or it actually increases volatility; and, introducing an FTT faces serious implementation challenges.
EDHEC-Risk Institute Puts Forward a Series of Proposals to Limit Non-Financial Risks in the European Fund Management Industry
In a summary document that concludes three years of research on better management of non-financial risks within the European fund management industry – conducted with the support of CACEIS – EDHEC-Risk Institute is putting forward a series of proposals to limit these risks which emerged during the 2007-2008 crisis and undermined the quality of the UCITS label. For EDHEC-Risk Institute, the sophistication of UCITS is one of the principal causes of a rise in non-financial risks. These risks are not the direct result of positions taken by funds on financial markets and for which they receive a reward proportional to their exposure, but rather produced by the operation of the value chain of the collective investment management industry itself.
EDHEC-Risk Institute Calls on Investors to Take Better Account of Pension Liabilities when Analysing the Solvability of European Countries
While public and private pension systems in the EU are under tremendous pressure, a new study by EDHEC-Risk Institute analyses the explicit and implicit pension liabilities that are weighing on the public finances, and the principal related risks. As structural deficits become a target in the Eurozone and beyond, it is fundamental to evaluate the extent to which the increasing funding needs, and decreasing funding basis of public pensions, could add to public deficits. Due to the variety of national systems, obtaining a clear view of pension liabilities is not straightforward. The recent 2012 Ageing Report (European Commission, 2012) goes a long way in providing comparable figures and projections of public pension expenditures. On the basis of these projections to the year 2060, EDHEC-Risk Institute has estimated the net present value of the corresponding liabilities for various discount rates.
Infrastructure Construction Risk does not Need Public Sector Guarantees but Scientific Portfolio Construction
In a report published on January 16, 2013, the UK National Audit Office (NAO) expressed concerns that if the British government, in its desperation to attract pension funds to the infrastructure sector, gave large construction risk guarantees for new projects, substantial liabilities could arise for the British taxpayer. This is an ongoing debate in the UK, but it highlights an issue of global relevance: numerous governments are now pushing for the growth of institutional financing of national infrastructure spending plans, while investors are increasingly looking at long-term assets like infrastructure. Recent research by EDHEC-Risk Institute in the context of the NATIXIS Research Chair on infrastructure debt investment argues that construction risk guarantees are simply not necessary if scientific portfolio construction methodologies are applied to infrastructure investing. In effect, they are likely to be damaging not only from a public welfare perspective but also from an asset management one.
Meridiam Infrastructure, Campbell Lutyens and EDHEC-Risk Institute launch a Research Chair on equity investment in infrastructure
With this new Chair, EDHEC-Risk Institute will conduct research supported by Meridiam Infrastructure and Campbell Lutyens on “Infrastructure Equity Investment Management and Benchmarking.” The Chair will involve a research team made up of three senior researchers (professors and engineers) from EDHEC-Risk's campus in Singapore for the next three years. This research aims to provide a better understanding of the nature and investment profile of equity investment in infrastructure assets. It will focus on fostering data collection and aggregation from investors and on improving the benchmarking of return distributions for direct and indirect investment in infrastructure equity by developing an academically-validated and industry-recognised index. EDHEC-Risk Institute, Meridiam Infrastructure and Campbell Lutyens are committed to bringing further knowledge to institutional investors, financial regulators and governments while the infrastructure world and financial regulations have dramatically evolved in the past decade. As part of the Chair launch, EDHEC-Risk Institute, Meridiam Infrastructure and Campbell Lutyens are delighted to announce the publication of a first foundation paper: “Towards Efficient Benchmarks of Infrastructure Equity Investments.”