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Investment Management - May 24, 2011

Sergio Focardi invited to speak at the CFA 10th Annual Research for the Practitioner Workshop

The 10th Annual Research for the Practitioner Workshop took place on 8 May last in Edinburgh, Scotland, as a prelude to the 64th CFA Institute Annual Conference.

At the workshop, Sergio Focardi, professor of finance at EDHEC Business School, and co-author with Frank J. Fabozzi and Caroline Jones of the CFA Institute monograph entitled “Investment Management after the Global Financial Crisis”, outlined the profound changes in the investment management industry caused by the recent global financial crisis.

The website dedicated to the event reports that Professor Focardi "observed that recent global events have highlighted the need for a better alignment of expectations with the overall ability of economies to generate returns. As such, a top-down approach in which macroeconomics plays a much bigger role has moved to the fore, Professor Focardi argued. Investors are also paying more attention to other tensions such as liquidity risk, counterparty risk, systemic risk, and the effects of leverage.

With this evolution in thinking, Professor Focardi explained that asset allocation is becoming more dynamic, even though investors may not be fully embracing tactical asset allocation per se.

Following this move toward a more dynamic asset allocation is an expansion of the universe of investable asset classes. Portfolio diversity matters—and portfolio construction is expanding beyond stocks, bonds, cash, and real estate. Other asset classes being integrated into investment portfolios include currencies, natural resources, precious metals, private equity, infrastructure, and even intangible investments such as intellectual property rights.

Finally, Professor Focardi noted that new risk management methods are emerging in response to the financial crisis. Consider how the analysis of trends can help investors achieve better diversification and manage risk more effectively. Including the evolution of selected macroeconomic variables in the modeling of trend reversals (e.g., regime shifting models) that characterize crises can be used to improve portfolio outcomes."

Sergio Focardi was previously a partner at the Intertek Group and managing director of the Italian subsidiary of Control Data Corporation. His research revolves around the econometrics of large equity portfolios and the modelling of interactions of multiple heterogeneous agents. His work has appeared in leading academic and practitioner journals. Professor Focardi has also authored and co-authored award-winning books and is a member of the editorial board of the Journal of Portfolio Management.