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EDHEC-Risk Information

EDHEC-Risk in the Press

Articles published in 2011

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December 2011

  • Pensions & Investments (27/12/2011)
    Performance of hedge funds of funds isn't helping their cause
    "(...) Through Nov. 30, hedge funds of funds declined 5.3% year-to-date according to the EDHEC-Risk Institute. Of the more than $10.4 billion in hedge fund allocations that Pensions & Investments has tracked thus far in 2011, 74% went to direct managers. (...)"
    Copyright Pensions & Investments [Full text - Registration required]


  • IPE (21/12/2011)
    Hedge funds mostly negative in 2011, reveals EDHEC research
    "(…) The majority of hedge fund strategies have reported losses for 2011 to the end of November, with the average long/short equity fund finishing down 5.5%, according to research by the EDHEC- Risk Institute. Patrice Retkowsky, senior research engineer at the Institute said that after the "spectacular" rebound in October, November saw a "stable but slightly negative" performance from strategies reliant on the S&P 500 index. He added that this was due to a further reduction of 7.2% in implied volatility. (…)"
    Copyright IPE [Full text - Registration required]


  • Reuters (21/12/2011)
    Short-selling throve in 2011 - EDHEC
    (...) Short-selling has been the best hedge fund strategy in 2011, up 6.3 percent in the first 11 months of the year, while world stocks are up a meagre 0.7 percent in the year-to-date and European stocks down 13 percent, according to EDHEC-Risk Institute data. The second-best strategy has been fixed income arbitrage, up 3.5 percent in the first 11 months of 2011, while all the other strategies struggled although none of them posted double-digit losses, EDHEC data shows. (...)"
    Copyright Reuters [Full text]


  • Wealth Adviser (20/12/2011)
    Target-volatility strategies – a response to current investment dilemma
    "(...) Research results show that a target-volatility strategy allows for effective management of volatility and that it both significantly reduces the downside risks and improves the upside potential compared to a fixed-mix strategy. It also augments investors’ access to the upside potential when a capital guarantee overlay is applied. Furthermore, the explicit management of volatility is found to reduce the cost of capital protection. The study also documents utility gains for risk-averse investors regardless of the presence of a capital guarantee overlay and argues that significant allocations should be made to structured equity investment strategies with volatility targeting. The study has important practical implications for long-term investors. Though evidence is taken from examining Asian equity markets, the results are applicable in other regions and for asset classes that exhibit similar characteristics. (...)"
    Copyright Wealth Adviser [Full text]


  • Financial Advisor Magazine (December 2011)
    Model-Free Investing: Is equal weighting’s agnostic view of asset-pricing theory an advantage?
    "(...) Richard Michaud of New Frontier Advisors agrees. “An equally weighted portfolio may often be substantially closer to true (mean-variance) optimality than an optimized portfolio,” he writes in the 2008 edition of his book Efficient Asset Management. A September 2011 paper from the EDHEC-Risk Institute (“Improved Beta? A Comparison of Index-Weighting Schemes”) arrives at a similar conclusion by comparing several alternatively weighted indices targeting U.S. and global equity markets. (...)"
    Copyright Financial Advisor Magazine [Full text]


  • L'Agefi (19/12/2011)  
    Noël Amenc : "La gestion d'actifs est confrontée à une double peine réglementaire"
    "(...) Pour le futur de l'industrie de la gestion française, deux tendances lourdes se dessinent selon Noël Amenc : un rapprochement entre la banque d'investissement et la gestion d'actifs pour le développement de nouvelles offres de benchmark, et la mise en place de solutions individuelles et collectives de retraite par capitalisation, qui va s'imposer en France. (...)"
    Copyright L'Agefi [Full text - French]


  • La Tribune (19/12/2011)  
    « La gestion d'actifs est confrontée à une double peine réglementaire »
    Entretien avec Noël Amenc, directeur de l'EDHEC-Risk Institute
    "(...) L'EDHEC-Risk Institute publiera prochainement une étude sur les premières leçons à tirer de la crise pour l'industrie financière. Son directeur livre en avant-première ses conclusions à « La Tribune ». (...) La première conséquence est une terrible perte de revenus, non seulement parce que la baisse des marchés a un effet mécanique sur les montants des encours qui servent de base aux frais perçus par les prestataires d'investissement, mais également parce que l'aversion croissante pour le risque conduit les investisseurs à privilégier des supports à faible risque et donc, bien souvent, à marge réduite. Par ailleurs, chaque crise est l'occasion d'un questionnement de la valeur ajoutée de l'industrie financière. Ainsi, pour la gestion d'actifs, deux grandes questions sont aujourd'hui au coeur des discussions entre les investisseurs et leurs gérants. La première relève de la capacité de la gestion active à créer de la valeur. Au moment où de nombreuses classes d'actifs affichent des performances très négatives, nombreux sont les investisseurs à s'interroger sur la justification des frais de gestion. La seconde est plus structurante. Il y a une véritable remise en cause des pratiques et expertises de gestion des risques des gérants d'actifs. La crise de 2011 interpelle sur l'incapacité de l'allocation tactique à protéger les investisseurs contre les baisses brutales de marché, voire à savoir anticiper les rebonds et leur pérennité. (...)"
    Copyright La Tribune [Full text - French - Registration required]


  • ETFI Asia (Q4 2011)
    Evaluating the quality of indices: How systematic and transparent are standard equity indices?
    Article by Felix Goltz, head of applied research at EDHEC-Risk Institute, and Lin Tang, senior research engineer at EDHEC Risk Institute–Asia
    "(...) Given the variety of available indices and the crucial importance on the investment outcome that choosing an index has, a natural question is: “What makes a good index?” In academic literature, there are some commonly held rules for selecting and assessing an index. Arnott et al. (2008, pp64) argues that an index should be representative, replicable, transparent and rule-based, as well as having low turnover. Kamp (2008) also points out that “an index should be transparent, broad and ‘investable’.” Although different terms are used by different authors for index quality criteria, overall, we can summarise them into four main qualities: representativity, transparency, liquidity and investability. (...)"
    Copyright Asia-Pacific Media Limited [etfiasia.com]


  • Asia Asset Management (15/12/2011)
    Target-volatility strategies, a response to current investment dilemma
    "(...) In a new study entitled “Structured Equity Investment Strategies for Long-Term Asian Investors” conducted with the support of Societé Générale Corporate & Investment Banking, Stoyan Stoyanov, head of research at EDHEC Risk Institute–Asia and professor of finance at EDHEC Business School, examines the dilemma of how to extract risk premia while limiting exposure to downside risks. The study looks at the control of volatility as an objective and assesses various strategies to pursue this goal: a fixed mix of equity and risk-free assets, dynamic allocation between these assets targeting a fixed volatility, traditional portfolio insurance implementing a capital guarantee, and a target volatility strategy overlaid with a capital guarantee. The empirical focus on Asian equity markets is justified not only by the region’s importance in the shifting balance of economic power but also by the higher volatility of these markets and the difficulty of hedging in the absence of local volatility derivatives. (...)"
    Copyright Asia Asset Management [Full text - Registration required]


  • L'Agefi (14/12/2011)  
    L’EDHEC-Risk Institute dévoile ses benchmarks « Solvabilité 2 »
    "(...) En partenariat avec Russell Investments, l’institut a présenté hier seize benchmarks « Solvabilité 2 » destinés à favoriser une allocation aux actions optimale dans le cadre de la directive. Issus des travaux de la chaire de recherche « Solvency 2 benchmarks », ces références externes doivent permettre aux investisseurs, notamment aux assureurs, d’avoir des versions simplifiées pour concevoir et tester des modèles internes partiels. (...)"
    Copyright L'Agefi [www.agefi.fr - French]


  • Asia Asset Management (December 2011/January 2012 issue)
    SWF strategies: Liabilities and limits
    "(...) A June 2011 paper from the EDHEC-Risk Institute, produced in conjunction with Deutsche Bank, focuses predictably on the risk management aspects of SWF investment strategy, but nonetheless in ways that identified both current allocation issues and optimal approaches for the different types of SWFs. “Dynamic asset allocation methods increase the amount of risk an SWF can withstand, while narrow tactical asset allocation ranges reduce a fund’s ability to manage risks,” the paper notes. Whether the paper’s own approach, drawing on the latest pension investment methodologies “that consider the fund an integral part of the corporate balance sheet and jointly analyse capital structure and pension fund allocation choices”, is the most appropriate, is one more of the many significant questions currently revolving around SWFs. (...) As the EDHEC-Risk Institute report points out, most SWFs created to manage foreign exchange reserves are fuelled by capital sterilised through issuance of local-currency debt. Their disposable capital is therefore effectively the result of local-currency borrowing. (...)"
    Copyright Asia Asset Management [Full text - Registration required]


  • Financial News (09/12/2011)
    New research warns HFT adds to volatility
    "(...) The EDHEC-Risk Institute, a European centre for financial research, this week released a report on the economics of high frequency trading in which it labelled the activity as "no free lunch - if it has benefits, there must be costs." The institute, which is based in Nice, found that more automated trading activity is associated with "lower spreads", "more liquidity" and "better informational efficiency." However, its research also found that the activity leads to "greater short-run volatility." "Our results are amazingly consistent across markets and consistent with typical HFT strategies. Short-lived orders provide liquidity when they execute and just increase volatility if they do not," the report said. The research, led by Ekkehart Boehmer, a professor of finance at the EDHEC Business School, used statistical and econometric techniques to study the impact of automated and high-frequency trading across 39 markets. Boehmer concluded that "more and broader evidence" was needed to determine the full impact of the activity. He also talked of the "challenges for regulators" and questioned whether "rules had changed quickly enough to keep pace with all the events in financial markets." (...)"
    Copyright Financial News [Full text - Registration required]


  • Citywire (09/12/2011)
    Corporate bonds: what are the real risks?
    "(…) Whose word is worthy of whose bond? With government debt proving a turn-off for many, and corporate bonds increasingly in the spotlight, Citywire Global spoke to Noël Amenc from the EDHEC-Risk Institute in Paris, Raphael Robelin from BlueBay and Kathleen Gaffney from Loomis Sayles in Boston to hear the arguments for and against corporate bonds. (…)"
    Copyright Citywire [See the video]


  • L'Agefi (08/12/2011)  
    "La gestion Bêta prend sa revanche sur les stratégies alpha"
    Interview de Noël Amenc, directeur de l'EDHEC Risk Institute, l'institut de recherche spécialisé en gestion d’actifs qui fête ses 10 ans aujourd'hui
    "(...) Dès sa création, l’ EDHEC-Risk Institute s’est fait connaître pour sa recherche sur les hedge funds. Ils offraient une réponse à l’explosion de la bulle internet. Les investisseurs ont vu le bénéfice des stratégies non directionnelles, « hedgées » ou long short. Contrairement au discours dominant, qui confondait hedge funds et gestion alpha, nous considérions que le bêta était essentiel, même dans le monde des hedge funds. Les hedge funds sont décorrelés des marchés d’actions et d’obligations non pas parce qu'ils produisent de l'alpha mais parce que leur gestion se caractérise par des bêtas différents de ceux de ces marchés, les « alternative bêta ». A l’époque ce discours passait mal. Aujourd’hui, il n’est plus question que de bêta. On le voit avec les ETFs, les nouvelles formes d’indices actions ou obligations… Un vocabulaire marketing se développe: smart beta, diversified beta , advanced beta. Il y a dix ans on ne parlait que du succès des gros hedge funds. Aujourd’hui c’est celui des « passive managers » comme Blackrock, Lyxor, Amundi ETF qui fait l'actualité. (...)"
    Copyright L'Agefi [Full text - French]


  • Risk.net (07/12/2011)
    Exploring the alternatives to market cap weighting
    "(...) Research house EDHEC is a stern advocate of the alternative weighting methodology. Defining efficiency as the maximum Sharpe ratio portfolio in Modern Portfolio Theory; (an efficient weighting scheme being one that sits on the efficient frontier) "empirical studies carried out over 20 years ago have demonstrated that cap weighted portfolios are inefficient," says Eric Shirbini, part of the indexing team at EDHEC Risk Indices and Benchmarks in London. "What we try to do is estimate the Maximum Sharpe Ratio portfolio which gives investors the best level of return per unit of risk." While Shirbini says that market cap weighted indexes are representative of the market, and tell you where the market is at and always will, he says that investors care more about efficiency when making investment decisions. "Where the market is at is merely a barometer," says Shirbini. "There is no reason why investors should invest that way. Equity investors seek the highest level of performance per unit of risk and a benchmark that captures these characteristics is much more relevant." The pool of institutional investors and structured products tied to EDHEC-Risk Efficient Indices is expanding, though admittedly from a low base. In addition to working with BNP Paribas Investment Partners in the creation of the Parworld Efficient Eurobloc fund, EDHEC-Risk helped FTSE engineer an efficient weighted version of their World index series, in an attempt to provide investors with a benchmark that can be used as part of their equity portfolios. (...)"
    Copyright Incisive Media Investments Limited [Full text - Registration required]


  • Only Strategic (07/12/2011)
    EDHEC to outline Solvency II equity strategy solution
    "(…) EDHEC-Risk Institute, with the support of Russell Investments within the "Solvency II Benchmarks" research chair, has been designing new benchmarks for European insurance companies that are representative of a dynamic allocation strategy to equities. The aim of the initiative is to enable all small-or medium-sized European insurance companies which do not have a full internal risk mitigation model to be able to avail of an objective academic reference in order to manage the risk of their equity investments. At a special presentation to be held at the EDHEC-Risk Institute's London campus on 14th December, Professor Lionel Martellini, Scientific Director at EDHEC-Risk Institute, will be providing details on the solution developed by the EDHEC-Risk researchers and Pascal Duval, ceo EMEA, Russell Investments, will be explaining how the benchmarks can be implemented in practice. (...)"
    Copyright Only Strategic [Full text]


  • Funds Europe (December 2011)
    EDHEC Research: Sponsor risk, accounting risk, pension risk
    "(…) The body of rules and laws under which pension plans are organised has a huge impact on the management of sponsor and accounting risks. Samuel Sender of EDHEC-Risk Institute, analyses where the pressure comes from and how to manage it. (...)"
    Copyright Funds Europe [Full text - Registration required]


  • Business Times (07/12/2011)
    Putting the Tobin tax in its place
    Article by Raman Uppal, professor of finance at EDHEC Business School, a member of EDHEC-Risk Institute, and a director of the American Finance Association
    "(...) In conclusion, the theoretical arguments in support of the financial transactions tax as a measure to reduce volatility are, at best, mixed; the empirical evidence, on the other hand, indicates that the tax has either no effect on volatility or it actually increases volatility; and, such a tax faces serious implementation challenges. Thus, while "free" financial markets may not be the best solution, a transactions tax is unlikely to be the correct medicine for the negative effects that arise from trading by investors who are not fully rational. (...)"
    Copyright Business Times [Full text - Registration required]


  • Investment Magazine (06/12/2011)
    Manage investment risk in three steps
    Article by Stoyan Stoyanov, Head of Research, EDHEC Risk Institute—Asia
    "(...) Broadly speaking, investment management concerns optimal expenditure of risk budgets. To this end, diversification, hedging and insurance represent three complementary rather than competing techniques. Diversification should be used to achieve efficient risk-adjusted returns; hedging should be used to control systematic risks such as interest rates and inflation; and, finally, insurance should be used to implement downside protections. Academic research in dynamic portfolio theory suggests the three techniques can be used together. (...)"
    Copyright Investment Magazine [Full text]


  • Les Echos (05/12/2011)  
    La fiabilité des indices obligataires en question
    "(...) Une étude récente de l'EDHEC-Risk Institute a revélé de même que la construction d'indices obligataires « corporate » n'était pas optimale. Elle montre que les expositions aux taux d'intérêt et au crédit sont rélativement instables. Cette conclusion n'est pas neutre pour les investisseurs dans l'élaboration de leur allocation d'actifs, notamment pour la couverture de leurs engagements de passifs. « Dans la catégorie "investment grade", nous avons constaté une forte instabilité de la duration mais aussi du risque de crédit lui-même des principaux indices obligataires, confirme Noël Amenc. Pour un investisseur désireux de maîtriser ces risques et notamment d'assurer une couverture de son passif, il est donc nécessaire d'avoir une gestion active du risque de crédit et de taux de son portefeuille d'obligations "corporate". Dans le cas d'un ETF, et plus généralement d'une gestion passive, cette gestion n'est pas possible et est de facto assurée par les décisions des émetteurs. » (...)"
    Copyright Les Echos [Full text - Registration required - French]


  • IPE (December 2011)
    Perfect combination of active and passive
    "(…) Consequently, since 2009, ERAFP has been working with EDHEC-Risk Institute to build a better benchmark for small caps, which ERAFP was preparing to invest in. "EDHEC-Risk was developing an index methodology closely resembling the way we allocate between funds, focusing on correlation and the common sense assumption that the performance of an asset is proportional to its total risk. Small caps represent a particular challenge because of their lower liquidity. Several initiatives were conceived to reduce index turnover and avoid the least liquid stocks to ultimately compile a customised liquid universe with characteristics such as non-automatic rebalancing." Satisfied with its co-operation with EDHEC-Risk on small caps, in 2010 ERAFP decided to extend its new approach to large caps.This implied a review of its original foray into equities and thus the four initial mandates were re-tendered in 2010-11. "The result is 20% of our large caps assets is now passively managed against a customised FTSE EDHEC-Risk efficient index. Both the small and large caps indices are constructed within our SRI best-in-class universe." (…)"
    Copyright IPE [www.ipe.com]


November 2011

  • IPE (22/11/2011)
    Indices and benchmarks: Clarifying the difference
    Article by Noël Amenc, Professor of Finance at EDHEC Business School and Director of EDHEC-Risk Institute
    "(…) The words "index" and "benchmark" are often used indiscriminately in practice even though they are, a priori, very different concepts. A reference index is a portfolio that should represent the performance of a given segment of the market, so the focus is on representativeness. A custom benchmark is a portfolio that should represent the fair reward expected in exchange for risk exposures that an investor is willing to accept, so the focus is on efficiency. For most investors, this distinction may be semantic, but it clearly leads to different approaches to passive investment.(…)"
    Copyright IPE [Full text - Registration required]


  • IPE Asia (19/11/2011)
    How smart is your beta?
    "(…) Two different types of non market-cap based indexes are gaining popularity with pension funds and other institutional investors: fundamental - and risk-efficient indices. Both would typically hold the same constituent stocks as the standard index, but with often-times dramatically different weights. (...) A representative example is the FTSE EDHEC Risk Efficient Index which maximizes the Sharpe ratio of the portfolio constituting the index. (…)"
    Copyright IPE Asia [Full text - Registration required]


  • Le Cercle - Les Echos (17/11/2011)  
    Quelles sont les "nouvelles" valeurs refuge
    Article par Abraham Lioui
    "(...) Dans les manuels de Théorie Financière, l’actif sans risque a depuis toujours été assimilé au rendement d’un titre émis par un état (un bon du Trésor à court terme ou même le rendement d’une obligation de long terme). La crise d’endettement des états et les énormes écarts entre les taux payés par les différents états, appartenant à la même zone monétaire, remettent en cause cette pratique. Des titres qui, auparavant, étaient l’investissement du bon père de famille par excellence sont devenus aussi risqués si ce n’est plus que les titres des entreprises privées (obligations et actions). Les acteurs du marché ont bien sûr cherché des alternatives à ces titres afin d’offrir à leur clientèle et à leur propre fonds de placements des valeurs refuge qui garantiraient au moins le capital jusqu’à la résolution de la crise d’endettement actuelle. (...)"
    Copyright Les Echos [Full text - Registration required - French]


  • Les Echos (14/11/2011)  
    Classification et structure des produits, risques de contrepartie : les principaux réglages à opérer
    "(...) Pour Noël Amenc, directeur de l'EDHEC-Risk Institute, « le risque de contrepartie des ETF synthéthiques est limité, comparé à celui du prêt emprunt de titres si l'on se réfère aux volumes respectifs des deux activités ». Le montant quotidien du prêt emprunt de titres avoisine les 2.000 milliards de dollars, alors que celui des swaps atteint 120 milliards de dollars. Qu'il s'agisse de réplication physique ou synthétique, il est clair qu'au final les fonds ne détiennent pas en permanence les mêmes titres que ceux de l'indice. « En échange, on ne reçoit pas forcement du cash en guise de collatéral. Il peut alors y avoir un risque de liquidité. Il est important de bien connaître et de suivre l'évolution de la composition du collatéral. Les opérations de prêt emprunt directes ou indirectes via un swap générent des revenus cachés, dont il serait précieux de connaître le montant », poursuit Noël Amenc. (...)"
    Copyright Les Echos [Full text - Registration required - French]


  • Top 1000 Funds (09/11/2011)
    How sovereign risk hits equities
    "(…) As the Eurozone debt crisis lurches from Greece to Italy and investor sentiment continues to deteriorate, EDHEC-Risk Institute, a financial markets researcher, is investigating how sovereign risk can spread beyond bond markets and into the stocks and sectors of country-based equity markets. “We are looking at what sovereign risk means for equities,” says Professor Nöel Amenc, EDHEC director. “What we want to see is if there is a clear sovereign risk – not credit risk – of countries.” Ultimately EDHEC aims to discover if sovereign risk is a reliable long-term risk factor that investors can exploit as a consistent source of return. Amenc says the economic strength of a country has implications for companies doing business within its borders. For example, a weak sovereign will be unable to forcefully support systemically important businesses – let alone education, health or military systems – if they fall into crisis. (…)"
    Copyright Top 1000 Funds [Full text]


  • Ignites Europe (08/11/2011)
    Synthetic ETF risks overplayed: EDHEC
    "(...) Synthetic exchange-traded funds (ETFs) are getting too much bad press, according to one of Europe’s leading financial research bodies. So reports La Tribune. The asset class has been panned by various experts and regulators in recent months, with the spotlight intensifying after the rogue-trading scandal at UBS, but EDHEC-Risk Institute director Noël Amenc feels the risk is being overplayed. Mr Amenc claims that there is “no factual reason to consider synthetic ETFs as being more risky than other Ucits funds”. Their use of derivatives such as collateralised swaps, he explains, is “governed by the same rules as for all Ucits funds”. In fact, Mr Amenc tells La Tribune, synthetic ETFs, for marketing purposes and in order to respond to the criticism that comes their way, often implement transparency procedures that are “well in excess of regulatory requirements”. (...)"
    Copyright Ignites Europe (a Financial Times service) [Full text - Registration required]


  • L'Agefi (07/11/2011)  
    La fiabilité des indices d'obligations corporate est sous-optimale
    "(...) Sur la durée, l'exposition aux risques de crédit et de taux des huit indices d'obligations d'entreprises examinés par l'EDHEC-Risk Institute s'avère relativement instable. On peut dès lors en déduire que les méthodologies de construction de ces indices sont sous-optimales, conclut une étude de Felix Goltz, head of applied research, et Carlos Heitor Campani, research assistant à l'institut. (...) Dès lors, l'EDHEC-Risk Institute souligne que les investisseurs doivent être conscients non seulement de ce que les indices obligataires représentent, mais de comment les caractéristiques déterminantes comme l'exposition au risque évoluent sur la durée. Enfin, les auteurs de l'étude déplorent que les nouvelles formes d'indices obligataires qui sont apparues ne résolvent pas le problème le plus urgent des indices existants, à savoir la stabilité de la duration. (...)"
    Copyright L'Agefi [Full text - French]


  • La Tribune (07/11/2011)  
    « Le débat sur les ETF occulte la vraie question de leur meilleure utilisation »
    Entretien avec Noël Amenc, directeur de l'EDHEC-Risk Institute
    "(...) Le professeur de finance revient sur la polémique opposant les produits indiciels cotés à réplication synthétique et physique. (...) « Les dérivés jouent un rôle très important non seulement dans le cadre des ETF mais plus globalement dans la gestion d'actifs. Ils permettent de mettre en oeuvre des stratégies efficaces de gestion de risques et s'avèrent souvent être la seule manière de couvrir des risques non désirables ou ayant des conséquences extrêmes pour les portefeuilles. En restreindre leur utilisation serait, somme toute, un mauvais service à rendre non seulement à l'industrie de la gestion européenne mais plus globalement aux investisseurs ». (...)"
    Copyright La Tribune [Full text - French - Registration required]


  • IPE (04/11/2011)
    EDHEC study decries "instability" of corporate bond indices
    "(…) Corporate bond indices expose investors to an ever-increasing amount of risk the more investible they are, EDHEC Risk Institute has argued in new research. Examining eight indices for investment-grade fixed income – four denominated in US dollars and four based on euro-denominated issuances – the report also found that US-denominated indices showed a higher credit risk, and that the difference between investing in the US or the euro-zone was not simply a matter of determining a preferred currency exposure. (...) The report concludes that both credit and interest-rate risk exposure were "fairly unstable" across all eight indices. The report adds: "This instability has major implications for investors: even if a particular index matches an investor's desired risk exposures today, there is no guarantee it will do so tomorrow. (...) The report said: "The difficulty of finding the desired index may be one of the reasons for the relative unpopularity of passive investing in the corporate bond market. "Given its broad popularity in equity markets, passive investing will gain ground only if bond index providers begin to develop better methods of constructing indices."(…)"
    Copyright IPE [Full text - Registration required]


  • Risk.net (03/11/2011)
    Index innovation
    "(...) Aiming to answer investor’s call for alternative weighted indexes that avoid the “concentrations and trend following bias” of market-cap weighted indexes, FTSE focused on providing investors with a broad range of non market-cap index solutions, offering investors different approaches to index construction. (...) The index provider captured equity market returns with improved risk/reward efficiency by launching its FTSE EDHEC-Risk Efficient Index Series in partnership with EDHEC-Risk Institute in December 2010. The indexes aimed to achieve the highest possible return-to-risk efficiency by maximising the Sharpe ratio. “The index aims to produce outperformance in the long run, and the critical point of it is diversification,” says Eric Shirbini part of the research team at EDHEC-Risk in London. “You need to diversify across the universe so that you are able capture the opportunities across all stocks – effectively maximising returns and minimising risk.” (...)"
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  • Funds Europe (03/11/2011)
    Bond indices aren't as safe as you think
    "(…) Investors should be careful before adopting a bond index as their benchmark, because these indices are more complex and may be less stable than they imagine, according to a report by the EDHEC-Risk Institute. Investors have often considered bonds a safe haven and in recent years passive investing has become a popular way to gain exposure. But, says the report, “mixing bonds and passive investment turns out to be more complex than it first appears”. (...)"
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  • Australian Financial Review (02/11/2011)
    First accept debt crisis, then fix it
    A visiting French finance expert and academic says that it’s time for the world to face up to the global sovereign debt crisis
    "(...) French finance expert and EDHEC-Risk Institute global head Noel Amenc has called on the world to face up to the debt crisis, describing it as a global sovereign crisis and not just a European one. (...) According to Mr Amenc, this crisis may prove more significant than the 2008 one, where the question was, who will save the banks, this time we’re asking who will save the governments. Speaking on the European bailout agreement and the European stability fund, Mr Amenc noted that the International Monetary Fund is not prepared to invest in the fund because of its policy that recipients must first accept reforms before receiving any money. Mr Amenc also describes the European Central Bank guaranteeing any bailouts would be extremely dangerous and contribute to moral hazard.(...)"
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  • Risk.net (01/11/2011)
    Investors at risk of being misled as alpha strategies gain in popularity
    "(...) Then there is the challenge of quantifying alpha. "Adjusting for the market factor to establish alpha does not mean the investor is not exposed to other risk factors," says Eric Shirbini, researcher at research house EDHEC-Risk Indices and Benchmarks in London. "In fact, the definition of alpha depends on the asset-pricing model you are testing," says Shirbini. "For these reasons, the focus should not be on alpha but on risk-adjusted returns." (...)"
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  • Hedge Funds Review (November 2011)
    Diversification is popular with investors
    Article by Felix Goltz, head of applied research, and Lin Tang, senior research engineer, at EDHEC-Risk Institute
    "(...) A recent survey conducted by EDHEC-Risk Institute looked in part at the question of equity volatility indexes. These indexes are naturally less widely used than stock or bond indexes. Nearly 90% of respondents to the survey invest in equity and around 70% invest in bonds, while only one fifth have allocation in equity volatility. This can be explained by the fact they are relatively new, first introduced in 1993 (Whaley 1993). However, there may also be other reasons that make investors hesitate. In addition, although few respondents invest in equity volatility, over 60% of respondents who invest in equity volatility use indexes. Therefore, investigating in detail the views from the survey respondents is of interest, particularly when looking at equity volatility indexes. (...)"
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October 2011

  • IPE Special Supplement (October 2011)
    EDHEC-Risk Institute Research Insights Autumn 2011
    • The choice of asset allocation and risk management; Lionel Martellini
    • Ten years of research supported by the financial industry; Noël Amenc
    • Ten years of applied research; Felix Goltz
    • Ten years of speaking up on important issues for the financial industry; Peter O'Kelly

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  • Funds Europe (31/10/2011)
    Swiss fund to invest €816m in fundamental bond index
    "(…) A Swiss pension fund is poised to make a one billion Swiss franc (€816 million) investment into Lombard Odier Investment Management’s bond strategy that invests against fundamentally weighted indices. (...) However, the success of fundamentally weighted indices so far looks limited. The EDHEC-Risk Institute said recently that cap-weighted and debt-weighted indices – despite their shortcomings - remain the reference for European institutional investors and asset managers. EDHEC surveyed 104 investment professionals about equity and bond indices. Felix Goltz, head of applied research at EDHEC, said alternative indices were more likely to be used as a “cost efficient alternative for using up the tracking error budgets that are conventionally entrusted to active managers”. (...)"
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  • International Financing Review (29/10/2011)
    Could CDS replace rating agencies?
    "(...) Ever since the financial crisis began, rating agencies have been on the back foot, fighting to regain their credibility. But as their indications often lag behind the credit default swap market, it now appears their biggest battle is for relevance. (...) Speculators are often far better equipped to judge the healthiness of sovereigns, according to Professor Noel Amenc, a director of the EDHEC-Risk Institute. He notes ratings agencies can be quite backward-looking and essentially rely on accounting data. “Instead of believing in a neutral and rational ratings agency it is better to accept the market, even though it is sometimes irrational,” he said. (...)"
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  • The Hedgefund Journal (27/10/2011)
    EDHEC-Risk institute study summary
    "(...) EDHEC-Risk Institute Professor Joëlle Miffre has released “Long-Short Commodity Investing: Implications for Portfolio Risk and Market Regulation”, produced with market data and support from CME Group. The study examines the performance and risk characteristics of long-only commodity index investments favoured by passive investors and of long/short commodity strategies of the kind implemented by hedge fund managers. Over 1992-2011, strategies involving going long and short in commodity futures based on signals such as momentum, term structure or hedging pressure are found to dominate investment in long-only commodity indices, in terms of raw as well as risk-adjusted performance. (...)"
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  • Business Times (26/10/2011)
    Portfolio strategy: beyond diversification
    EDHEC-Risk Institute espouses the "dynamic asset allocation" technique
    "(...) Diversification is typically enshrined as a basic principle of portfolio construction. But EDHEC-Risk Institute director Noel Amenc says it must not be the only way to manage and mitigate risk. In fact, diversification does little to protect portfolios in the short run, he says. Risk management must also involve hedging and portfolio insurance. EDHEC advocates a technique called "dynamic asset allocation" which involves rebalancing your portfolio as the market rises or falls in line with the "risk budget" you set for yourself. (...) As part of its efforts in research with practical applications, the firm will be surveying wealth management firms in Asia to suss out their practice in terms of asset allocation and portfolio advice. (...) Says Mr Amenc: "It is a shame to see in this market what we see in Switzerland and other wealth management marketplaces, that the client is here for five or 10 years but the money is managed ... like a mutual fund without consideration for the risk and loss aversion of the investor." EDHEC opened its Asian office in Singapore last year to advise institutional investors and asset managers in the Asia Pacific. EDHEC-Risk celebrates its 10th year this year, and is part of the EDHEC Business School. (...)"
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  • Investment Europe (26/10/2011)
    Popularity boom for long/short commodity strategies
    "(...) A number of commodity experts including Man Group and EDHEC have highlighted why long/short commodity strategies are increasingly attractive to investors seeking low correlation to equities and bonds and strong performance. EDHEC-Risk Institute Professor Joëlle Miffre has examined commodity investment in a newly published study that concludes taking long and short positions when investing in commodities produces the most attractive returns, and that new regulation aimed at the rising number of commodities investors is unwarranted. (...) Miffre's study concluded that there is no support for the hypothesis that investors have destabilised commodity prices by increasing volatility between commodity prices and those of traditional assets. Miffre therefore dismissed the notion that new regulation is needed to reflect the increased participation of professional money managers in commodity futures markets.(...) "
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  • Asia Asset Management (26/10/2011)
    Importance of research to the financial industry amid global uncertainty
    "(...) Financial research has an important role to play in providing guidance and shaping the way forward through the current fog of uncertainty that is plaguing the industry, according to Ng Nam Sin, assistant managing director of the Monetary Authority of Singapore. “In the asset management space, financial research can contribute towards guiding sound investment decisions. Greater emphasis on risk management techniques and the optimal allocation of assets is needed to enable asset managers to ride out the volatility presently being experienced,” Mr. Ng said in his welcome address at the EDHEC-Risk Institute 10th year anniversary celebration held on Monday at the institute’s premise. “As the financial landscape continues to evolve, the economic centre of gravity continues to shift towards the East. Singapore is well placed to shape and contribute to these shifts, and grow as one of the leading financial centres in the region, especially with partners such as EDHEC,” he said. Established in 2001 in France, EDHEC-Risk Institute opened its first Asian centre just nine months ago in Singapore. Responding to a question from Asia Asset Management on what prompted it to set up a base in Asia, EDHEC-Risk Institute’s director Noel Amenc said: “The future of the investment management industry is in Asia. Asian investors need to develop a better grasp of their risks. There is a lot of sense in doing research addressing Asian investment issues and specificities, and doing it in Asia. Asian investors should not be held prisoners to investment knowledge developed for other regions whether this is done upfront or under the guise of a one-size-fits-all global investment approach.” (...)"
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  • FT Alphaville (25/10/2011)
    Money managers and commodities, the case against
    "(...) Here’s an interesting chart from the EDHEC-Risk Institute’s latest report on long-short commodity investing. (...) Interestingly, the authors of the report draw exactly the opposite conclusion. In their opinion the chart is not reflective of money manager influence on commodity prices. Or as they put it: The paper also studies whether the observed financialisation of commodity futures markets (as evidenced by the increase in the long, as well as short, positions of speculators over time) has led to change in the conditional volatility of commodity markets or to changes in their conditional correlations with traditional assets. Our results find no support for the hypothesis that speculators have destabilised commodity prices by increasing volatility or co-movements between commodity prices and those of traditional assets. Interestingly, this conclusion holds irrespective of whether speculators are labelled as “non-commercial” in the CFTC Commitment of Traders report or “professional money managers” (i.e., CTAs, CPOs and hedge funds) in the CFTC Disaggregated Commitment of Traders report. Thus the analysis presented here does not call for a change in the regulation relating to the participation of professional money managers in commodity futures markets. (...)"
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  • FT Adviser (25/10/2011)
    ‘No evidence’ of hedge funds destabilising markets
    "(...) There is “very little to no evidence” that hedge fund investors have had a destabilising affect on commodities markets over the past 20 years, according to a new study published by EDHEC Risk Institute. The research specialist, part of EDHEC Business School, conducted a study to examine “performance and risk characteristics of long-only commodity index investments favoured by passive investors and of long/short commodity strategies of the kind implemented by hedge fund managers”. According to the authors of the report: “A number of policy-makers have blamed the decade-long rise in commodity prices and recent market volatility on the growing influence of financial investors and called for new regulation restricting their participation in commodity markets.” The paper therefore examined whether the increased participation of these hedge fund investors has caused changes in the volatility of their portfolios or in the correlation between their returns and those of traditional assets. Based on data relating to the 20-year period between 1992-2011, the report found that there was very little to no evidence to suggest that these investors have had such a destabilising role [on commodities markets]”. (...)"
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  • Asia Asset Management (25/10/2011)
    EDHEC-Risk Institute study sheds new light on commodity investment and financialisation of commodity markets
    "(...) A number of policy-makers have blamed the decade-long rise in commodity prices and recent market volatility on the growing influence of financial investors and called for new regulation restricting their participation in commodity markets. Market financialisation has also led investors to worry about higher integration between commodity and traditional financial markets weakening the portfolio benefits of commodity investment. EDHEC-Risk Institute Professor Joëlle Miffre addresses these concerns in a study released today entitled “Long-Short Commodity Investing: Implications for Portfolio Risk and Market Regulation”, produced with market data and support from CME Group. The study first examines the performance and risk characteristics of long-only commodity index investments favoured by passive investors and of long/short commodity strategies of the kind implemented by hedge fund managers. (...)"
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  • Financial News (24/10/2011)
    Pension funds get to grips with swaps
    "(...) In the UK, 40% of pension funds allocate more than 20% of scheme assets to inflation derivatives. According to a survey by fund research firm EDHEC-Risk, conducted in partnership with French fund manager Axa Investment Managers, this compares with a 12% allocation in core European markets. (...)"
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  • Financial News (24/10/2011)
    Liquidity remains top priority
    "(...) UK investors ranked liquidity above even the type of index and total expense ratio when choosing an ETF, according to a survey by BlackRock last year. In Europe it’s the same, according to Felix Goltz, head of applied research at the EDHEC-Risk Institute in France. It has surveyed European ETF investors since 2006 and is putting together its 2011 results. Goltz said: “In all our surveys liquidity is the most important criteria, both in terms of the motivation for investing in an ETF and when it comes to selecting between them.” In Europe, EDHEC has found more investors are using ETFs for dynamic allocation strategies, for example, and US research firm Greenwich Associates reported in May that institutions were increasingly turning to ETFs for transition management, among other uses, putting money into ETFs rather than cash while transferring it between managers. (...)"
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  • L'Agefi Hebdo (20/10/2011)  
    Matières premières, le G20 divisé sur les limites de position
    "(...) Aux Etats-Unis, la Commodity Futures Trading Commission (CFTC) devait adopter, le 18 octobre, le dispositif qu'elle avait proposé en janvier suite à la loi Dodd-Frank (un système de limites sur les futures échangés sur des marchés organisés et les swaps équivalents échangés de gré à gré sur 28 matières premières). (...) Hilary Till, chercheur associée à l'EDHEC-Risk Institute, relativise la portée de l'outil. « Certains marchés américains de "futures" agricoles fonctionnent actuellement avec un régime de limites de position défini par la CFTC, dit-elle. Il faut donc faire attention lorsque l'on soutient que ces limites sont une contrainte particulièrement lourde pour les intervenants. » (...)"
    Copyright L'Agefi Hebdo [www.agefi.fr - French]


  • Pensions Insight (19/10/2011)
    NAPF: ETFs as solution to tackle failure of diversification
    Interview with Felix Goltz, Head of Applied Research at EDHEC-Risk Institute
    "(…) Felix Goltz of EDHEC-Risk Institute says diversification in pension funds has failed and ETFs provide a solution. (…)"
    Pensions Insight [View the video]


  • Citywire (19/10/2011)
    Corporate bonds "relatively unstable" says study by EDHEC Institute
    "(…) Corporate bond indices are "relatively unstable" due to exposure to fluctuating credit and interest rates, according to research from the EDHEC risk institute to be published next month. The paper, seen by Citywire, argues that unlike indices tracking sovereign bonds, corporate bond indices do not account for maturity of the bond, increasing exposure to interest rate risk. Bonds are considered defensive but actually, even if you think they are a passive investment, the risk exposure on different corporate bond indices is still very uncertain", said Felix Goltz, Head of Applied Research at the EDHEC-Risk Institute and co-author of the report. (…)"
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  • L'Agefi (18/10/2011)  
    Les institutionnels critiquent la pondération des indices
    "(...) Un sondage de l'EDHEC-Risk Institute auprès de 104 investisseurs institutionnels européens montre que 68 % de ces professionnels critiquent les indices actions capi-pondérés et 53 % les indices obligataires pondérés par la dette. Cependant, malgré leurs failles, ces produits demeurent une référence pour ces investisseurs et les gestionnaires d'actifs. (...) Les investisseurs en actions reprochent surtout le fait que les indices capi-pondérés standard surpondèrent des titres trop chers et n'offrent pas une diversification suffisante. Pour leur part, les utilisateurs d'indices obligataires accordent une grande attention à une exposition fiable à la duration et aux questions de liquidité.(...)"
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  • Funds Europe (17/10/2011)
    Traditional indices still dominate
    "(…) Investors may like to grumble about traditional cap-weighted and debt-weighted indices, but new research shows they still are still dependent on these tools. More than two-thirds of institutional investment professional surveyed by the EDHEC-Risk Institute criticised traditional cap-weighted equity indices and more than half had gripes with debt-weighted bonds indices. But less than half of the professionals have translated words into action. For equity indices, the adoption rate of alternative weighting schemes is 45%, for government bonds indices it is 18% and for corporate bonds it is 13%. (...)"
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  • IPE (17/10/2011)
    Indices should shy from only reflecting passive strategies, says EDHEC
    "(…) Indices should shy away from only reflecting passive investment strategies, according to new research conducted by EDHEC-Risk Institute. In a survey of more than 100 European institutional investors, the organisation – part of EDHEC Business school – also found that liquidity, objectivity and transparency were three areas viewed as most important by investors when assessing indices. According to the report, 58% of respondents did not think indices should reflect a passive investment approach, but 75% also urged that an alpha strategy should not form the basis either. Turning to equity indices specifically, EDHEC noted: "Equity investors are mainly concerned that standard cap-weighted indices overinvest in overpriced stocks and provide poor diversification within the constituent universe. (…)"
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  • Global Pensions (17/10/2011)
    European investors no longer define indices as buy-and-hold
    "(...) A survey by London-based EDHEC-Risk Institute of over 100 large institutional investors in Europe found over 50% of respondents are no longer concerned with indices representing a buy-and-hold strategy, a finding EDHEC director Noel Amenc said was "surprising". The Indices in Institutional Investment Management survey found investors now define passive investing as being exposed to normal returns, as opposed to abnormal returns. "This finding is interesting as the dominance of cap-weighted indices in various asset classes is often attributed to their buy-and-hold nature. This new attitude from investors opens the door to new approaches based on dynamic rebalancing rules, as long as these are transparent and systematic," EDHEC said. (...)"
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  • FTfm (17/10/2011)
    Investors gloomy on market-cap
    "(...) Buying and holding market-cap weighted equity and bond indices for the long haul has come under attack in a new survey of European institutional managers’ investing habits. Research from EDHEC-Risk Institute suggests big investors would prefer to take stakes in alternative indices such as equal-weighted ones, risk-adjusted indices or accounting-based ones in the belief these would throw up higher returns. However, they are reluctant to switch as the performance of these investments would still be measured against a market-cap weighted benchmark, creating a performance risk if the alternatively weighted indices underperform. Nearly half (45 per cent) of equity investors polled have adopted alternatively weighted indices. “There’s a lack of satisfaction with standard cap weighted indices but adoption of alternatives is low due to the fact that as investors move from a cap-weighted benchmark they take on peer group risk,” said Felix Goltz at EDHEC and co-author of this year’s European index survey. (...)"
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  • Funds Europe (October 2011)
    EDHEC Research: The next index rulers
    "(…) Alternatives to cap-weighted indices do deliver what they promise, say Felix Goltz and Lin Tang from the EDHEC-Risk Institute. In recent years, many alternatives to cap-weighted equity indices have been launched. These are constructed using other weighting schemes, which are supposed to improve on capitalisation weighting and thus provide investors with improved beta. The objective of a recent research paper by EDHEC-Risk Institute, entitled Improved Beta? A Comparison of Index-Weighting Schemes, was to analyse the performance of a set of such indices. The results suggest that the improved beta approaches do provide benefits compared with the standard cap-weighted indices. Moreover, the weighting schemes achieve very different objectives, making good on their promise to alleviate specific problems inherent to capitalisation weighting. (...)"
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  • Hedge Funds Review (October 2011)
    Strategic use of ETFs
    Article by Felix Goltz, head of applied research, and Lin Tang, research analyst, both at EDHEC-Risk Institute; and Jean-René Giraud, CEO, and Elie Charbit, head of asset allocation models, both from Koris International
    "(...) In recent research supported by Amundi ETF as part of the core-satellite and ETF investment research chair at EDHEC-Risk Institute, we evaluate the access to value and momentum premiums gained by using risk-controlled strategies. In particular we use both the broad market index and value or momentum trading strategies across sectors in a dynamic core-satellite (DCS) portfolio. We assess the risk-control benefits of the DCS portfolios. In addition to the benefits of dynamic risk budgeting, the research highlights the role of ETFs in value and momentum trading strategies that are often perceived to be strategies for individual stocks. A contribution of our research is to apply value and momentum investing to ETFs, focusing on sector-level effects. (...)"
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  • Les Echos (10/10/2011)  
    Critique mais pas hermétique
    "(...) En 2008, une étude de l'EDHEC Risk Institute avait provoqué des remous dans le monde de l'ISR. Il en ressortait que les gérants spécialisés créaient peu de surperformance. Trois ans plus tard, Noël Amenc, son directeur et également professeur de finance, n'a globalement pas changé d'opinion. « Notre récente publication montre que si l'on utilise comme "benchmark" des indices de marchés, une majorité de fonds ne les surperforment pas » , explique-t-il. Noël Amenc ne rejette pas pour autant l'ISR. « L'approche en elle-même est intéressante, reconnaît-il. (...) Le directeur de l'EDHEC Risk Institute convient qu'il est une fantastique opportunité pour faire avancer la réflexion sur une meilleure diversification de portefeuille. Le centre de recherche l'a mis en musique en travaillant avec l'Etablissement des retraites additionnelles de la fonction publique (Erafp) et FTSE. « Nous avons construit un indice efficient ISR assez difficile à battre ! », se félicite-t-il. (...)"
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  • IPE Asia (07/10/2011)
    Diversity the key for ETFs future success in Asia
    "(…) The EDHEC-Risk Asian Index and ETF survey results, revealed in the latest edition of IPA, show that exchange traded funds are more favorably perceived than other passive investment vehicles. EDHEC’s survey, which was developed with the support of Amundi, collected and analysed 127 responses from Asian investment professionals on their use and perceptions of ETFs and competing indexing instruments. Survey respondents were asked to rate ETFs, total returns swaps (TRSs), futures and index funds on nine quality criteria. Overall, ETFs dominated other passive investment vehicles in terms of cost, liquidity and tracking error, although on cost they are less well regarded than futures. (…)"
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  • Asset International (04/10/2011)
    EDHEC Study: ETFs Can Boost Returns, Lower Risk in Core-Satellite Investment Approach
    "(…) A new study from the EDHEC-Risk Institute, produced as part of the Amundi ETF research chair on "Core-Satellite and ETF Investment," has found that implementation of a Dynamic Core-Satellite approach can boost portfolio returns while keeping downside risk under control. (...) The research -- conducted by Elie Charbit, Jean-René Giraud, Felix Goltz and Lin Tan -- claimed that ETFs, which offer both liquidity and a broad exposure to the markets to implement portfolio strategies, on sectors rather than on stocks can be used to put these strategies into effect. The study concluded that ETFs additionally facilitate the shifts -- required by dynamic strategies -- from core to satellite. (…)"
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  • Financial News (04/10/2011)
    Short-selling bans "do more harm than good"
    "(...) The August bans were met with a chorus of condemnation from market participants, analysts and think-tanks, who pointed out that previous attempts by regulators to stem the 2008 spiral in bank stocks by banning short-selling had had no impact on the downward direction of prices. EDHEC-Risk Institute, the business school, denounced the August bans, saying: “These hasty decisions are not only devoid of theoretical basis, but also fly in the face of empirical evidence." (...)"
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  • FTfm (03/10/2011)
    Hedging: Is half an umbrella better than none?
    "(...) Pension fund managers seeking advice on hedging their currency exposure could be forgiven for feeling dismayed at the sheer variety of responses they receive. (...) Faith in their ability correctly to anticipate currency movements has led many international fixed income managers to ignore currency risk, according to Noël Amenc, director at the EDHEC-Risk Institute. “International fixed income managers tend not to cover currency risk because, traditionally, currency bets represent a significant share of the funds’ returns,” Mr Amenc says. (...) On the whole, though, it is not these costs that influence managers decisions, says Mr Amenc. “It is not so much the direct cost of the hedge as the opportunity cost that managers do not like,” he says, referring to the risk of missing out on any beneficial currency movement. (...) However, an academic paper published last year suggests there are significant correlations between equities and exchange rates while for bonds the correlations are low. This would suggest that, optimally, an investor should not be completely hedged for an equities portfolio, while for bonds “a complete hedge is more attractive and should be favoured,” says Mr Amenc. (...)"
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  • The Treasurer (October 2011)
    Should corporates issue inflation-linked bonds?
    Article by Lionel Martellini, Professor of Finance, EDHEC Business School, and Scientific Director, EDHEC-Risk Institute, and Vincent Milhau, Senior Research Engineer, EDHEC-Risk Institute
    "(...) In recent research supported by Rothschild & Cie as part of the EDHEC-Risk Institute research chair on “The Case for Inflation-Linked Corporate Bonds: Issuers’ and Investors’ Perspectives,” we introduce a general framework with which a corporation subject to default risk may make optimal debt-management decisions. We attempt to answer the following question: given an exogenous revenue process for a corporation, what is the optimal liability structure when the issuer faces such instruments as fixed-rate debt, floating-rate debt, and inflation-linked debt? In fact, this problem is the exact counterpart of the standard asset/liability management problem for a pension fund, in which liabilities are exogenously given while it is the allocation decision that is optimised. (...)"
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September 2011

  • Ignites Europe (27/09/2011)
    Fidelity calls for break-up of Ucits
    "(...) Fidelity is not the only organisation to call for a complete overhaul of the Ucits directive. Samuel Sender, a research manager within the EDHEC-Risk/Caceis chair, says: “We shouldn’t fiddle with the Ucits regime and try to separate things that were agreed a long time ago. It would be better to say: ‘Here is a very secured retail framework with zero risk of non-restitution and strong distribution rules’." Mr Sender says AIFMD should be used as an umbrella directive for all Ucits and non-Ucits managers. It would be supported by regulations for the different funds, which would be defined by safety and liquidity criteria. “In a way Ucits doesn’t exist anymore; it has been dissolved in its own vagueness,” he adds. “Today’s reality of Ucits does not correspond to its initial definition about being retail, liquid and safe.” (...)"
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  • Funds Europe (September 2011)
    EDHEC Research: Time changes everything
    "(…) Asset liability models for sovereign funds must be dynamic to cater for their long-term horizons, says Lionel Martellini, of EDHEC Business School. Where their money comes from and what the money is needed for are also important factors. (...) This rapid growth of SWFs and its implications pose a series of challenges for the international financial markets and for sovereign states. In particular, an outstanding challenge is to improve our understanding of optimal investment policy and risk management practices. The purpose of recent research – called Asset-Liability Management Decisions for Sovereign Wealth Funds, and carried out as part of the Deutsche Bank ‘Asset-Liability Management Techniques for Sovereign Wealth Fund Management’ research chair at EDHEC-Risk Institute – is to focus on improving our understanding of optimal investment policy risk management practices for SWFs. (...)"
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  • Asia Risk (21/09/2011)
    Chinese sovereign wealth funds should dump US stocks, report says
    "(...) Chinese sovereign funds such as Safe Investment Company and CIC should consider dumping and even shorting US retail stocks during US economic downturns, if they want to adopt an integrated asset and liability management process when making investment decisions, according to a new paper by the EDHEC-Risk Institute. The EDHEC-Risk Institute in Singapore has recommended that Chinese sovereign entities hold no exposure to the stocks of US retail companies or that they short such stocks to hedge against appreciation of the renminbi as well as hedging a fall in US consumer demand. In its paper, "An integrated approach to sovereign wealth risk management", the institute outlines a model that takes into account assets and liabilities of a sovereign sponsor to achieve the optimum investment allocation for sovereign wealth funds. The idea is to minimise risks associated with liabilities of a country, which may be unwittingly duplicated or overlooked by the fund entity, says report author Bernd Scherer. (...)"
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  • Commodities Now (September 2011)
    Keeping the Faith
    "(...) In the coming weeks and months, the CFTC (and others) will start unveiling new curbs on the commodity markets as part of a wider bout of financial reform. Tension is high. Economists who insist that fundamentals - such as emerging market demand and inventory levels - are driving prices remain pitted against those who blame financial flows and manipulation. A good example of this comes in a recent position paper from the EDHEC-Risk Institute which reveals that French President Nicolas Sarkozy's view that "the financialisation of agriculture markets...is a contributory factor in price volatility..." is contradicted by Dr. Pierre Jacquet, Chief Economist of the Agence Francaise de Developpement, who notes that a number of market-based solutions could potentially help developing countries better manage commodity price volatility, including increasing access to risk-hedging instruments. (...)"
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  • The Telegraph (21/09/2011)
    Hedge funds get it wrong
    "(...) Hedge funds had a bad month in August. According to the EDHEC Risk Institute, which tracks the performance of the sector, the sharp falls in share prices last month meant that the only hedge funds to post significant gains were those following a short-selling strategy. Despite this investors are maintaining their allocations in this type of investment and are mainly backing hedge funds to help them ride out some of the most volatile markets since the financial crisis hit three years ago. Hedge funds have had a mixed performance this year and by the end of August the average fund was down 1.2%. (...)"
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  • Reuters (20/09/2011)
    Europe shares rise as defensives offset weak banks
    (...) While equities slumped in August, short selling strategies thrived, according to data from EDHEC-Risk Institute. The hedge fund strategy posted a gain of 7 percent for the month. (...)
    Copyright Reuters [Full text]


  • Hedge Funds Review (13/09/2011)
    People moves
    "(...) EDHEC finance professors Frank Fabozzi and Ekkehart Boehmer have two awards. Fabozzi is co-recipient of the European Financial Management Best Paper Award for a paper entitled Property Derivatives for Managing European Real-Estate Risk", co-authored with Robert Shiller from the department of economics, Cowles Foundation and school of management at Yale University and Radu Tunaru from the University of Kent. Boehmer was among nine scholars to receive a Distinguished Referee Award from the Review of Financial Studies. Boehmer was also invited by the Review of Financial Studies to serve as associate editor for a three-year period from July 2011. Fabozzi is professor of finance at EDHEC. Boehmer joined EDHEC as professor of finance in January 2011. (...)"
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  • Les Echos (12/09/2011)  
    La multigestion alternative à l'épreuve de la crise
    "(...) Si l'on se réfère à l'indice EDHEC, à fin juillet, la performance annuelle des fonds de hedge funds était de -0.64%. « Sachant qu'en août les hedge funds ont perdu en moyenne 3% à 3,5%, il est clair que la performance des fonds de hedge funds est à l'heure actuelle bien ancrée en territoire négatif, entre -3% à -4% en moyenne », analyse Mathieu Vaissié, gérant de portefeuille senior chez Lyxor, et chercheur associé à l'EDHEC Risk Institute. Les raisons sont multiples. Tout d'abord, « la grande majorité des hedge funds ne sont pas parvenus à tirer profit de la forte volatilité des marchés alimentée par les incertitudes économiques et les décisions politiques en cascade », signale-t-il. Ensuite, ajouter de la valeur au niveau de l'allocation par stratégie s'est révélé être particulièrement difficile cette année. (...)"
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  • Hedge Funds Review (September 2011)
    G20 agricultural ministers ponder effects of rising food and commodity prices
    Article by Hilary Till, research associate, EDHEC-Risk Institute
    "(...) Although the developed world’s focus in the last three years has been on the unfolding global financial crisis, the June G20 agricultural meeting in Paris appropriately brought attention to the damaging impact of food insecurity and food price volatility on developing countries. The meeting’s communiqué largely bypassed the controversy surrounding agricultural derivatives trading, and instead embraced market-based solutions in dealing with food price volatility, amongst its many action items. This paper notes that whether speculative derivatives trading has been excessive and has led to increased price volatility are empirical questions, which can be readily addressed whenever trading and market-participant data is publicly available. We would agree with the World Bank president who stated in Zoellick (2011) that “the answer to food price volatility is not to prosecute or block markets but to use them better”. (...)"
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August 2011

  • Ignites Europe (30/08/2011)
    Bans cannot stop short selling: experts
    "(...) Ekkehart Boehmer, professor of finance at EDHEC, believes the inconsistent approach to short selling among member states means that the ban is unlikely to be effective. Mr Boehmer says: “Financial stocks are traded in more than one market. If you want to ban short selling, you need an agreement between all exchanges. “The fact is you can never ban short selling; you can only make it more expensive. It is more a political signal than a true ban.” (...) Mr Boehmer adds that experience in the US shows that not one short-selling case has been brought to courts since 2008 because of wrongdoing. “If the situation is that the financial sector is overvalued in the stock markets, eventually you have to face the truth and arrive at a right valuation. Short sellers do exactly that,” he says. “A crisis would be if short sellers try to push down prices more than fair value, but we have no evidence of that.”(...)"
    Copyright Ignites Europe (a Financial Times service) [Full text - Registration required]


  • Financial Times (29/08/2011)
    Inflation-linked debt offers useful hedge
    Article by Lionel Martellini, professor of finance at EDHEC Business School and scientific director at EDHEC-Risk Institute and Vincent Milhau, senior research engineer at EDHEC-Risk Institute
    "(...) In a recent paper supported by Rothschild & Cie, we propose a formal analysis of a company’s debt management decisions. We take it that the company is subject to default risk and can employ various debt instruments, including fixed-rate, floating-rate, and inflation-linked debt. We argue the main motive behind debt management is not to reduce the cost of debt financing, but instead to hedge interest rate and inflation risk exposures. This approach, which is based on matching the company’s financing with the exposure of its activities to interest rate and inflation risk, constitutes a transposition of the well-known technique in institutional financial management called asset-liability management. (...)"
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  • Le Temps (29/08/2011)  
    Dissociation et gestion dynamique des risques
    "(...) C’est ainsi que la très récente étude menée par l’EDHEC en juillet 2011 (Charbit, E., Giraud, J.-R., Goltz, F., Tang, L., « Capturing the Market, Value, or Momentum Premium with Downside Risk Control: Dynamic Allocation Strategies with Exchange-Traded Funds ») a démontré la pertinence de l’utilisation de ces techniques de gestion dynamique des risques au sein de diverses stratégies d’investissements (i.e. stratégies « momentum » ou « value »). Les auteurs de cette recherche soulignent que les techniques de budgétisation dynamique des risques (« Dynamic Risk Budgeting ») lorsqu’elles sont utilisées, comme par exemple la stratégie DCS – pour Dynamic Core Satellite strategies –, permettent à des gestionnaires d’actifs d’amener une réelle valeur ajoutée sur les rendements d’une stratégie de placement, tout en respectant les différents budgets de risques même lors de phases baissières. (...)"
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  • Professional Wealth Management Asia (August 2011)
    Clients catch on to risk management
    "(...) Despite ample recognition of their importance, risk control techniques employed by wealth managers remain at a pretty basic level. Findings from a recent study conducted by EDHEC-Risk show private wealth managers in Europe see the relationships they forge with clients as the principal source of the value they add, while customised services, such as financial risk management, do not rank very high. "The lack of sophistication in risk management techniques that we see in Europe is even more pronounced in Asia," says Professor Stoyan Stoyanov, head of research for EDHEC-Risk Institute-Asia. Some relatively new concepts, such as asset liability management or life-cycle investing, are still largely unknown, although they are perceived to add most value to meet client objectives. (...)"
    Copyright Professional Wealth Management Asia [Full text]


  • Pensions & Investments (22/08/2011)
    Investors get peace of mind through indexes: Cap weighting seen putting too much in troubled countries
    "(...) Institutional investors are starting to look to benchmarks and “better beta” indexes for something they used to get from government bonds: peace of mind. As many of the largest sovereign bond markets have also become the most indebted, the use of cap-weighted investment approaches has made less and less sense, experts say, as cap weighting increases investments to a country as it becomes more and more in debt. (...) Felix Goltz, head of applied research at the EDHEC-Risk Institute, Nice, France, said non-cap-weighted bond indexes do reduce the problem of investing in the most-indebted countries (or companies, in the case of a corporate bond strategy), but “in terms of controlling risk exposures, they don't achieve much.” (...)"
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  • Le Monde (19/08/2011)  
    La suspension des « ventes à découvert » ne permet pas d'éviter de lourdes chutes en Bourse
    "(...) Pour Noël Amenc, professeur de finance à l'EDHEC et spécialiste des fonds spéculatifs, ce retournement n'est pas une surprise. Interdire les ventes à découvert est, dit-il, « au mieux démagogique, au pire dangereux ». Démagogique car le régulateur n'a pas, ou plus, les moyens de contrôler le respect de cette règle. (...) En outre, les vrais « spéculateurs » ont recours à bien d'autres outils plus ou moins sophistiqués pour parier sur la chute d'une valeur, et contourner la mesure, rappelle Abraham Lioui, professeur de finance à l'EDHEC. Mais pour ces experts, le plus grave n'est pas là. A les écouter, interdire les ventes à découvert est non seulement inefficace, mais aussi potentiellement contre-productif. (...)"
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  • Business Times (17/08/2011)
    European ban on short-selling won't work
    "(...) One of the more prominent critics of bans on short-selling is France's EDHEC-Risk Institute whose researchers have studied the effects of such bans and concluded that they do not reduce volatility but instead obstruct market efficiency. For example, in their September 2009 paper "Shackling Short Sellers: The 2008 Shorting Ban", researchers Boehmer, Jones & Zhang studied the September 2008 decision by the US Securities and Exchange Commission (SEC) to temporarily ban short sales of financial stocks after the Lehman Brothers bankruptcy. They studied changes in stock prices, the rate of short-sales, the aggressiveness of short-sellers and various liquidity measures before, during and after the shorting ban. "Stocks subject to the ban suffered a severe degradation in market quality as measured by spreads, price impacts and intra-day volatility. Prices of stocks subject to the ban did increase sharply but it is difficult to assign this effect to the ban because the Troubled Asset Relief Program (TARP, a rescue package for US banks unveiled by the US Federal Reserve) and other initiatives were announced the same day," the researchers said. "In fact, we find no positive share price effects in stocks that were added to the ban list later, suggesting that the ban may not have provided much of an artificial price boost". (...)"
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  • Business Times (16/08/2011)
    Stocks: is it really time to buy?
    "(...) For one thing, Europe's debt problems are far from over. The ban on short-selling may appear to help by providing temporary relief but the evidence suggests that such bans will eventually cause more problems. In his paper, Spillover Effects of Counter-cyclical Market Regulation: Evidence from the 2008 Ban on Short Sales, for instance, finance professor Abraham Lioui of EDHEC Business School found that European banning of shorting during the plunges of 2008 did not help ease pressure. "The ban on short-selling increased the daily volatilities of the markets; the impact of the ban was greater than the impact of the ongoing financial crisis," said Prof Lioui. (In a separate paper on US efforts to curb short-selling in 2008, EDHEC reached a similar conclusion.). (...)"
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  • Les Echos (16/08/2011)  
    Les ventes à découvert divisent régulateurs et opérateurs
    "(...) Même son de cloche du côté de l'EDHEC-Risk lnstitute, un centre de recherche français qui a noué des partenariats avec de grandes institutions financières. Qualifiées d'« écran de fumée politique doublement contre-productif », les restrictions sur les ventes à découvert « désorganis(ent) l'activité et (sont) susceptible(s) de dégrader les conditions de marché dans une période déjà hautement volatile », affirme l'institut. (...)"
    Copyright Les Echos [Full text - Registration required - French]


  • European Pensions (15/08/2011)
    Industry against short-selling ban
    "(…) EDHEC-Risk Institute also said the decisions are contrary to empirical evidence. In a statement, the institute said academic studies “have documented the positive contribution of short-sellers to market efficiency and shown that constraining short sales significantly reduces market quality – by reducing liquidity and increasing volatility – and can have unintended spillover effects.” EDHEC Business School Professor Ekkehart Boehmer and his co-authors have studied short selling activities, and have found that “short sellers are important contributors to efficient stock prices, that short interest contains valuable information for the market, that information is impounded faster and more efficiently into prices when short sellers are more active and that short sellers change their trading around extreme return events in a way that aids price discovery”, the statement said. (…)"
    Copyright European Pensions [Full text]


  • Financial News (15/08/2011)
    Now for Plan B: Anyone for sustainable bonds?
    "(...) Last week Deutsche Bank strategy head Jim Reid declared: “It’s possible markets are starting to slowly share a similar view to ours that the Western world financial system built over the last two to three decades might be totally unsustainable. (...) Comprehensive studies by French research institute EDHEC into sustainable strategies have concluded: “In most cases alpha is negative and not statistically significant.” (...)"
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  • Ignites Europe (15/08/2011)
    Short-selling bans slammed by market
    "(...) EDHEC-Risk Institute, which has undertaken a series of studies on short-selling bans, says the decisions are “a political smokescreen that are likely to be counterproductive”. The financial research institute says the bans are directly counterproductive in that they disrupt market functioning and degrade market quality, and indirectly by “further fuelling defiance vis-à-vis sovereign states and the continued inability of their political institutions to address the causes of the current crisis”. (...)"
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  • The Telegraph (13/08/2011)
    Debt crisis: as it happened - August 12, 2011
    "(...) Statistics agency EDHEC-Risk is the latest research group to denounce the European short-selling ban which came into force in France, Italy, Belgium and Spain last night. Professor Ekkehart Boehmer, the lead author of its report, warns that previous short-selling bans led to "severe degradation in market quality". He adds: "Against this backdrop, EDHEC-Risk Institute denounces the decisions to impose or extend short-selling bans as a political smokescreen that is likely to be counterproductive, both directly by disrupting market functioning and degrading market quality at a most testing time, and indirectly by further fuelling defiance vis-a-vis sovereign states and the continued inability of their political institutions to address the causes of the current crisis." (...)"
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  • FT Adviser (12/08/2011)
    Market view: Shorting ban will not stabilise markets
    "(...) In a statement, the EDHEC-Risk Institute, part of the EDHEC Business School, said: "These hasty decisions are not only devoid of theoretical basis, but also fly in the face of empirical evidence. "Academic studies... have documented the positive contribution of short-sellers to market efficiency and shown that constraining short sales significantly reduces market quality – by reducing liquidity and increasing volatility – and can have unintended spillover effects. "EDHEC-Risk Institute denounces the decisions to impose or extend short-selling bans as a political smokescreen that is likely to be counterproductive." (...)"
    Copyright FT Investment Adviser [Full text]


  • CNBC (12/08/2011)
    Short-Selling Ban "Biggest Mistake of My Term": Former SEC Chair
    "(…) While the move by the four European countries may have brought some temporary calm for the stocks in the region’s ailing banking sector, critics blasted the temporary ban. EDHEC-Risk Institute, a division of one of Europe’s top business schools, called the decision “a political smokescreen.” Citing academic studies, the group said the move “is likely to be counterproductive, both directly by disrupting market functioning and degrading market quality at a most testing time, and indirectly by further fuelling defiance vis-à-vis sovereign states and the continued inability of their political institutions to address the causes of the current crisis.” (…)"
    Copyright CNBC [Full text]


  • Global Custodian (12/08/2011)
    Industry Condemns Global Short Selling Bans; National Regulators Clash on Rules
    "(...) EDHEC-Risk Institute, the financial research group, went so far as to say it “condemns” the latest bans by France, Italy, Belgium and Spain. (...) “Academic studies, including work by EDHEC-Risk Institute researchers, have documented the positive contribution of short-sellers to market efficiency and shown that constraining short sales significantly reduces market quality – by reducing liquidity and increasing volatility – and can have unintended spillover effects.” (...)"
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  • The Guardian (12/08/2011)
    Four countries ban short-selling to ease market pressure
    "(...) "Some authorities have decided to impose or extend existing short-selling bans in their respective countries," it said in a statement last night. "They have done so either to restrict the benefits that can be achieved from spreading false rumours or to achieve a regulatory level playing field, given the close interlinkage between some EU markets." However, the bourses failed to convince other markets such as the UK to introduce a similar ban. "It is the worst thing to do right now. This would signal to the market that there may be something fundamentally bad that is happening," Abraham Lioui, a professor at the EDHEC business school in France, told the Financial Times.(...)"
    Copyright The Guardian [Full text]


  • Le Monde (11/08/2011)  
    France, Espagne, Italie et Belgique restreignent les ventes à découvert
    "(...) Mais cette décision représente une victoire partielle de l'ESMA, qui a échoué à convaincre les régulateurs d'autres pays de l'Union européenne, souligne le Financial Times. Le Royaume-Uni et les Etats-Unis, qui ont mis en place une interdiction similaire en 2008, sont aujourd'hui sceptiques sur leur efficacité, ajoute le Financial Times. "C'est la pire chose à faire maintenant, estime Abraham Lioui, professeur à l'EDHEC, cité par le FT. Cela envoie le signal aux marchés que quelque chose de très grave est en train de se produire". (...)"
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  • Financial Times (10/08/2011)
    Short-selling ban boosts bank shares
    "(...) But academics who have studied the 2008 bans said the new restrictions could backfire. "It is the worst thing to do right now. This would signal to the market there may be something fundamentally bad that is happening," said Abraham Lioui, a professor at the EDHEC business school in France. (...)"
    Copyright Financial Times Fund Management [Full text - Registration required]


  • Hedge Funds Review (August 2011)
    Regulatory debate continues on merits of short selling in turbulent markets
    Article by Abraham Lioui and Michelle Sisto, EDHEC Business School
    "(...) Regulators continue to disagree on rules to curtail short selling. Empirical evidence suggests constraining short sales significantly reduces market quality and can have unintended consequences. Since the beginning of the financial crisis, the practice of short-selling has come under heightened scrutiny with regulatory reactions differing across countries. Investors short stocks for many reasons: some bet on the fall of a share’s price due to over-valuation, others as part of convertible arbitrage or long/short strategies, while others use the method for ­hedging ­purposes. The practice is contentious, however, and during sharp market declines, short-sellers are often cited as putting undue downward pressure on prices thereby exacerbating negative price moves. Much of the recent activity in regulation is aimed at reducing this potentially harmful effect of shorting. (...)"
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July 2011

  • Global Custodian (29/07/2011)
    There Are Many Misconceptions About Risk Management
    "(...) There are some misconceptions about risk management and blaming this concept for not protecting investors in 2008 merely signals a lack of proper understanding of the true nature of risk diversification, says chiefs at the EDHEC-Risk Institute. Recent EDHEC-Risk research shows that while diversification is most effective in extracting risk premia over reasonably long investment horizons, hedging and insurance are better suited for loss control over short horizons. Furthermore, new forms of investment solutions should rely on the use of improved performance-seeking and liability-hedging building-block portfolios, as well as on the use of improved dynamic allocation strategies. (...)"
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  • Brian Bollen (29/07/2011)
    In Diversification We Trust?
    "(…) In an article entitled In Diversification We Trust? the authors state that by focussing on security selection decisions as a single source of added value, the investment industry has somewhat distracted from another key source of added value, namely, risk management. However, there are some misconceptions about risk management and blaming this concept for not protecting investors in 2008 merely signals a lack of proper understanding of the true nature of risk diversification. Recent EDHEC-Risk research shows that while diversification is most effective in extracting risk premia over reasonably long investment horizons, hedging and insurance are better suited for loss control over short horizons. Furthermore, new forms of investment solutions should rely on the use of improved performance-seeking and liability-hedging building-block portfolios, as well as on the use of improved dynamic allocation strategies. (...)"
    Copyright Brian Bollen [Full text]


  • Financial Director (27/07/2011)
    Tobin tax leaves a bad taste
    Article by Peter O'Kelly, EDHEC-Risk Institute
    "(...) EDHEC-Risk Institute's research, published in July, shows that the theoretical arguments in support of the Tobin tax as a measure to reduce volatility are, at best, mixed. The Tobin tax will obviously lead to a reduction in the trading of securities on which the tax is imposed and will reduce speculative activity in financial markets. However, this tax also drives away investors who provide liquidity, stabilise prices, and help in the price discovery process. The empirical evidence, on the other hand, indicates that a Tobin tax either has no effect on volatility or actually increases volatility. The imposition of a transaction tax leads to a reduction in the demand for that financial security and, thus, a drop in its price. (...)"
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  • Hedgeweek (27/07/2011)
    No consensus on link between speculation and price volatility, according to new EDHEC-Risk paper
    "(...) In a new EDHEC-Risk Institute position paper, “A Review of the G20 Meeting on Agriculture: Addressing Price Volatility in the Food Markets,” Hilary Till (pictured), Research Associate with EDHEC-Risk Institute, and Principal of Premia Capital Management, examines food price volatility in the context of the G20 meeting of agriculture ministers. In reviewing the evidence so far regarding the impact of commodity trading, speculation, and index investment on price volatility, the report finds that the evidence for the prosecution does not seem particularly compelling at this point. The paper’s conclusion is to agree with the World Bank president who has said that the answer to food price volatility is not to prosecute or block markets, but to use them better. In the author’s view, one sensible use of financial engineering is for hedging volatile food price risk with appropriate commodity derivatives contracts. (...)"
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  • Funds Europe (13/07/2011)
    Benchmarks: The road less travelled
    "(…) Concerns with indices, which are commonly used as benchmarks, are surfacing in current research by the EDHEC Risk Institute. Felix Goltz of EDHEC, says: “A survey of 100 institutional investors in Europe, which we are currently analysing, found investors are critical of existing indices. The problem is that pension funds typically use broad market indices that do not necessarily reflect their objectives.” (...)"
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  • Pensions & Investments (25/07/2011)
    EDHEC professor Bernhard Scherer brings "shadow assets" out of the dark
    "(...) An EDHEC professor is developing an approach to asset allocation that would better tailor investments to each investor. Similar to the way corporate pension funds take the employer's business risks into account when investing, public plans and sovereign wealth funds, endowments and foundations and even defined contribution participants should do the same, argues Bernhard Scherer, professor of finance at EDHEC Business School in London. In a new paper, “Asset Allocation with Shadow Assets,” he contends allocations to shadow assets — defined as non-financial and non-tradable assets that are outside the investor's asset allocation decision — “can hardly be changed, and yet their existence will change the investor's perspective on total wealth at risk.” (...)"
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  • Financial News (21/07/2011)
    How to invest your Sovereign Wealth Fund
    "(...) Just in case the Chinese politburo or the Parliament of Norway need some advice about how to invest their multibillion-dollar sovereign funds, the French business school EDHEC has supplied it. The conclusion of its research? Most SWFs are insufficiently hedged. (...) EDHEC's paper, authored by Bernd Scherer, a former head of quant products at Morgan Stanley, asks what their deal investment strategy should be. (...) Scherer writes that it's generally understood and accepted that the oil-based funds should minimise their investments in oil, and maximise their investments in things that hold their value during recessions and oil-price shocks, such as government bonds. But what's less discussed, Scherer reckons, is the best strategy for the Asian forex-based sovereign funds. Just like the oil funds, they are exposed to economic risks, though not quite the same ones. Scherer writes: "An SWF is not a standalone investment vehicle ... an SWF should find it desirable to invest in assets that have low correlation with changes in the sovereign state’s primary budget. Economies differ, and so should SWF asset allocation. (...)"
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  • Global Custodian (21/07/2011)
    EDHEC-Risk Institute Proposes Integrated Approach to Sovereign Wealth Risk Management
    "(...) EDHEC-Risk Institute’s recent publication “An Integrated Approach to Sovereign Wealth Risk Management,” shows how to derive the optimal asset allocation for sovereign assets given different drivers of economic risks as well as varying degrees of indebtedness. The publication further examines earlier work on the optimal investment policy and risk management practices of sovereign wealth funds by integrating these funds into the economic balance sheets of their sponsoring countries. It puts forward a model that decomposes an SWF’s demand for risky assets into a combination of speculative and hedging demands. (...)"
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  • Financial News (18/07/2011)
    Buyout firms unsure about new solvency rules
    "(...) A study by the Ecole Des Hautes Etudes Commerciales du Nord research institute published in April last year used the Thomson One database as a benchmark for correlating risk. Using Thomson, which comes from data that is reported voluntarily by private equity firms and limited partners, EDHEC concluded that the correlation range for buyout funds averaged around 0.5, while for venture funds the correlation average was below 0.2 when compared with listed stocks. According to McCrystal, the EDHEC results paint a more accurate picture of the level of correlation between the two asset classes. She said: “The reality is that when you use a more representative starting point you can see far less correlation between the two investment areas. “This [the difference between the EDHEC and EU results] is significant because smaller insurance companies will be obliged to the use the standard model under Solvency II, which might have the effect of insurers reducing their commitments to the asset class more than is appropriate or necessary,” she said. (...)"
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  • FTfm (18/07/2011)
    Too many diversifiers hugging the index
    "(...) This approach is borne out in other parts of the financial world. A report by the EDHEC-Risk Institute released earlier this year suggests that the more holdings a private equity fund holds, the worse these investments perform. “Scale is a robust and consistent driver of the cross-section of returns of private equity investments,” the report says. (...)"
    Copyright Financial Times Fund Management [Full text]


  • Financial News (13/07/2011)
    Think tank warns over "counterproductive" Tobin Tax
    "(...) An influential European think tank has joined calls for the European Commission to scrap its plans for a financial transactions tax, which could raise up to €50bn a year from 2014, criticising the levy as a counterproductive step and potentially destabilising for the region. The EDHEC-Risk Institute, a European centre for financial research, yesterday sent an open letter to the European Internal Market and Services Commissioner, Michel Barnier, warning that the levy, known as a Tobin tax, would have "either no effect on volatility or actually increases volatility". (...) In its letter yesterday, the Nice-based EDHEC-Risk Institute said the tax "would be a counterproductive step for Europe" and would face "serious implementation challenges". It questioned the ability of the tax to distinguish between transactions that are used for hedging purposes and purely speculative trades, and how the rate of the tax would be set so as only to reduce speculative activity. (...)"
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  • Funds Europe (13/07/2011)
    Don't be tempted by Tobin tax, warns EDHEC
    "(…) Imposing a tax on speculative transactions could jeopardise liquidity, reduce the value of some securities and create a headache for regulators to enforce, according to an open letter from the EDHEC-Risk Institute to European regulators. (...) But the EDHEC-Risk institute counters that the tax “also drives away investors who provide liquidity, stabilise prices, and help in the price discovery process”. The institute goes on to claim that most empirical studies of the tax suggest it either fails to reduce volatility or leads to an increase in volatility. Worse, the tax can cause a drop in demand for securities which leads to a drop in prices, it said. (...)"
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  • Hedgeweek (12/07/2011)
    Alternative Ucits prosper but will QIFs and SIFs spoil the party?
    "(...) “It’s reassuring to have the protection of Ucits but they didn’t go for it before because it’s not what they needed. Some say that ideally they wouldn’t invest in Ucits but they have constraints that push them to do so,” comments Samuel Sender, Applied Research Manager at EDHEC-Risk Institute, whose research is sponsored by CACEIS as part of the research chair “Risk and Regulation in the European Fund Management Industry”. (...)"
    Copyright Hedgeweek [Full text]


  • Les Echos (11/07/2011)  
    Italie : le gendarme de la Bourse encadre les ventes à découvert
    L'avis d'Abraham Lioui, professeur de finance à l'EDHEC
    " (...) L'autorité boursière Consob a annoncé dimanche soir l'adoption d'une mesure pour encadrer les ventes à découvert. L'objectif est de limiter la volatilité du marché. Depuis lundi matin, les ventes à découvert sont sous étroite surveillance en Italie. Après la chute des valeurs bancaires vendredi, affectées par des craintes d'une contagion de la crise de la dette, l'autorité boursière a décidé d'encadrer les ventes à découvert pour limiter la volatilité. (...)"
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  • Hedge Funds Review (July 2011)
    EDHEC research reveals negative correlation between private equity deal performance and duration
    Article by Florencio Lopez de Silanes, professor of finance at EDHEC Business School and a member of EDHEC-Risk Institute
    "(...) We document a strong negative association between performance and duration. Quick flips (investments held less than two years) accounting for 12% of all PE investments have median IRR (PME) of 85% (1.94), whereas investments held more than six years, which account for nearly 18% of all PE investments, have a median IRR (PME) of only 8% (0.79). (...) Our investment level data allows us to document the performance impact of several investment and PE firm characteristics. We find that small investments outperform large ones. In addition, and contrary to some arguments by fund managers, our results show a close connection between public and private equity: the average stock-market return over the life of an investment has a significant impact on IRR. Our most important finding, however, is that PE company scale is a significant and consistent driver of returns. (...)"
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  • IPE Special Supplement (July/August 2011)
    EDHEC-Risk Institute Research Insights Summer 2011
    • Is there a risk/return trade-off across stocks?; Felix Goltz, Dev Sahoo
    • A post-crisis perspective on diversification for risk management; Noël Amenc, Felix Goltz, Stoyan Stoyanov
    • Efficient indices and efficient relative return benchmarks; Noël Amenc
    • Advantages and shortcomings of minimum variance portfolios; Felix Goltz
    • Optimal hedge fund allocation with improved estimates for coskewness and cokurtosis parameters; Lionel Martellini
    • Value and momentum effects across exchange-traded funds; Elie Charbit, Jean-René Giraud, Felix Goltz, Lin Tang

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  • Les Echos (04/07/2011)  
    « Hedge funds » : les stars peinent à décrypter un environnement confus
    "(...) Il est difficile dans ces conditions de marché sans tendance affirmée, de dégager des performances robustes. Ainsi, sur les cinq premiers mois de l’année, les gérants « global macro » ont perdu en moyenne 1,5 %, selon les indices EDHEC-Risk Alternative, ce qui en fait une des trois plus mauvaises performances des grandes stratégies alternatives. Sur longue période (2001-2011), elle rapporte en moyenne 7,7 % par an, ce qui la place au milieu du peloton. Durant la crise, les « global macro » ont plutôt mieux résisté que les autres stratégies, avec les performances exceptionnelles de fonds comme Paulson ou Brevan Howard. (...)"
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June 2011

  • The Banker (30/06/2011)
    New regulations see insurers and banks link up over liquidity
    "(…) Russell Investments recently commissioned the risk institute of French school of finance EDHEC to prepare a Solvency II investment benchmark series to allow insurers to build a partial internal model, which is likely to be more capital-efficient than using the regulators’ prescribed standard model. Based on each insurer’s current ALM profile and prepared in close communication with regulators and auditors, the benchmarks will have a set level of duration, value-at-risk and return characteristics required by the insurers. The asset mix will then be chosen from this, and will dynamically reallocate as market conditions change. The EDHEC benchmarks will be publicly available, and Russell Investments hopes to make further contributions to the key developments in insurance ALM. (…)"
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  • Funds Europe (June 2011)
    Research: Making use of risk management
    Article by Samuel Sender, applied research manager at EDHEC-Risk Institute
    "(…) This article attempts to analyse the empirical benefits of risk management. One could think that, because of the great benefits of risk management, tests are likely to show that those using risk management will have superior results. The conclusion, as we will see, is more complex. In our recent Survey of the Asset and Liability Management Practices of European Pension Funds, which was undertaken as part of the Regulation and Institutional Investment Research Chair in partnership with Axa Investment Managers, we examined the ways asset-liability management (ALM) at pension funds makes use of modern investment management techniques. (...)"
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  • Index Universe (30/06/2011)
    Roundtable: Indexing In Europe
    By Journal of Indexes Europe Staff
    Five industry experts define the European index investing market: Felix Goltz, Head of Applied Research, EDHEC-Risk Institute
    "(...) JoI Europe: What are the main challenges facing Europe’s index industry? Goltz: Institutional investors have told us that their level of satisfaction with the range of indices currently on offer is quite low, surprisingly so, we found. Investors like the transparency and systematic approach of index investing but would like a greater diversity of market indices to select from. So the main challenge for the index industry is to develop new indices that offer different exposures, for example corresponding with certain investment objectives, while maintaining a good level of liquidity and transparency. (...)"
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  • Business Times (30/06/2011)
    It pays to go green
    "(...) One of the most tenacious prejudices SRI faces is that it must forgo financial performance in order to satisfy its environmental, social or corporate governance preferences. This prejudice is not borne out by facts, however. The most recent academic update on this question comes from the renowned French business school EDHEC. The researchers looked at 120 SRI funds (both best-in-class and thematic) during the period 2002-2009. They did not find a statistically significant performance differential for SRI funds or indices for the whole period, including the financial crisis. This is rather good news as it means that it is indeed possible to invest sustainably without giving away anything in terms of financial performance, and that the environmental and social value-added from SRI is something of a rare free lunch. (...)"
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  • L'Agefi Hebdo (30/06/2011)  
    ETF : La sonnette d'alarme
    "(...) A l'inverse, selon Felix Goltz, chercheur à l'EDHEC, « plusieurs études empiriques ont démontré que l'introduction d'ETF ("exchange-traded funds", NDLR) améliore la liquidité du marché sous-jacent de leur indice, mais aussi l'efficience des prix ». (...)"
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  • Pensions & Investments (27/06/2011)
    Yale finance professor to join EDHEC
    "(...) Frank J. Fabozzi will join EDHEC Business School and its EDHEC-Risk Institute on Aug. 1 as part of its effort to develop an EDHEC-Risk Institute North America, Mr. Fabozzi confirmed on Monday. (...) Mr. Fabozzi will be a professor of finance at EDHEC, a full-time position. Mr. Fabozzi will also supervise dissertations of candidates in the doctorate in finance program at the EDHEC-Risk Institute. Mr. Fabozzi, who also is a director of BlackRock's closed-end fund family and will continue in that position, will be working on the development of the EDHEC-Risk Institute North America, an effort overseen by Lionel Martellini, professor and scientific director of EDHEC-Risk Institute. (...)"
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  • Funds Europe (27/06/2011)
    Tracking error: When the worm turns
    "(…) Another concern for ETF users is tracking error, which is the difference between the ETF’s performance and the return from the underlying index that it passively tracks. Research by EDHEC Risk Institute found that the percentage of ETF users who employ more advanced ways to measure tracking error is growing. In 2009, 13% of respondents to an EDHEC survey used more advanced measures of tracking error, while in 2010, 24% of respondents did so. The numbers are statistically significant, EDHEC says, and suggest investors are paying closer attention to ETF tracking error. (...) Respondents to the EDHEC survey use methods such as correlation analysis to check the tracking quality of their ETFs. Some respondents use such advanced measures of tracking error as the “asymmetric or downside tracking error, or co-integration analysis”, the survey showed. But 10% of respondents said they did not know what method was used. EDHEC said this may be the result of the assumption that the tracking quality of these instruments is good. If that is the case, it seems that to some investors even the global financial crisis was not enough to deepen their scepticism for financial products. (...)"
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  • Global Pensions (27/06/2011)
    Monday Movers
    "(...) Frank Fabozzi, editor of the Journal of Portfolio Management and professor at Yale University's School of Management, will join EDHEC-Risk Institute to help build out its North American division. He will join on 1 August. Fabozzi had been editor of the famed journal since 1986 and has authored over 100 reference textbooks in finance. He will work on the development of EDHEC-Risk Institute North America alongside Lionel Matellini, scientific director at the Institute. Fabozzi said: "A 2010 industry survey conducted by EDHEC-Risk Institute found that 86% of the professionals polled considered that ‘further education and effort were required on the part of investment managers to close the gap between research advances and real-world practices’, and 79% felt that ‘it was (very) important for academe to pay more attention to the applicability of research’. It is this important role that EDHEC Business School and EDHEC-Risk Institute will play in the education of finance professionals and it is one of the principal reasons why I was honoured to be asked to join the faculty of the School and invited to be a member of the Institute." (...)"
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  • Global Custodian (27/06/2011)
    Professor Frank J. Fabozzi joins EDHEC-Risk Institute
    "(...) EDHEC-Risk Institute hired Frank J. Fabozzi to join its North American strategy and work on the development of EDHEC-Risk Institute North America beginning August 1. He will team up with Lionel Martellini, scientific director of EDHEC-Risk Institute, who will be in charge of North American development for the Institute from the beginning of the 2011-12 academic year. (...) “As editor of the Journal of Portfolio Management over the past 25 years, Frank Fabozzi’s primary goal has always been the integration of theory and practice,” Noël Amenc, director of EDHEC-Risk Institute, says. “We are delighted and honored that he has decided to join our efforts at EDHEC-Risk Institute to combine academic excellence with industry relevance, and we look forward to working with Frank as we expand our activities in North America.” (...)"
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  • Le Temps (27/06/2011)  
    Une évolution et non une révolution : Les particuliers fortunés ne se contentent pas d’être intéressés par les produits dits « ISR », ils y investissent
    "(...) Au premier abord, il semble peu probable qu’une sélection de titres basée uniquement sur des critères ESG crée de la surperformance. Cependant, certaines études académiques récentes (études publiées en 2010 par l’EDHEC Risk Institute) démontrent qu’il est possible de suivre un processus de sélection d’ISR rigoureux couplé à des techniques d’analyse financière traditionnelle sans pour autant être pénalisé. (...)"
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  • Financial News (20/06/2011)
    Bond indices may steer investors towards greater risk
    "(...) Investors should be wary of bond indices based on market capitalisation, with fund managers and consultants warning that they could lead to a concentration of risk and a possible financial bubble. (...) Many investors are also reluctant to give up the transparency and accountability a benchmark brings. In a survey of mainly large institutional investors published last December by EDHEC-Risk Institute, part of the largest business school in France, objectivity and transparency in portfolio construction were cited as the key attributes of indices. (...)"
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  • IPE (20/06/2011)
    French civil servants fund opts for risk-weighted SRI indices
    "(…) French civil servants pension fund Erafp has opted for risk-weighted socially responsible investment (SRI) indices in its latest euro-zone listed equity mandates. (...) For financial reasons, Erafp wanted to have risk-weighted indices rather than market cap indices. These were specifically designed for the pension fund by FTSE and French business school EDHEC. (…)"
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  • Financial Times (20/06/2011)
    EDHEC: School has a simple mission – relevance
    "(...) The school stresses that relevance underpins all it does, particularly at its research centres, for example the EDHEC Risk Institute – a centre for applied finance, which was established in 2001. The institute has had a spectacular result, says the dean, and has helped promote the EDHEC brand worldwide, producing large amounts of “relevant” research, cited globally and attracting numbers of leading international faculty. The institute offers conferences and seminars, including those it runs on asset allocation in partnership with the CFA Institute – the association that awards the chartered financial analyst qualification and controls access to the upper echelons of fund management. The school also offers a PhD in finance, which runs on two tracks: one for graduate students with part-time research positions at the risk institute; and an executive track for working professionals. (...) The EDHEC Risk Institute has locations in London, Nice and Singapore, where it is involved in developing the financial skills of the city state, with the support of the Singapore government. (...)"
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  • Financial News (20/06/2011)
    Looking for trouble in the wrong place
    "(...) In 2007, for example, many credit market funds exhibited low volatility, then suffered a complete wipeout. Stoyan Stoyanov, head of research at the EDHEC-Risk Institute, Asia, said: “Volatility-based models can be useful if you have an investment horizon of one day, or one week, but you shouldn’t use them as a framework for long-term decisions.” (...)"
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  • La Tribune (20/06/2011)  
    « Les fonds de pension sous-estiment les risques économiques et comptables »
    "(...) Les fonds de pension sont confrontés à des risques souvent sous-estimés comme les risques économiques et comptables pour le sponsor (l'entreprise) et le risque que représente le sponsor pour le fonds de pension. Des thèmes que l'EDHEC-Risk Institute a analysés dans une étude parrainée par Axa Investment Managers. Selon elle, ces risques sont peu ou mal gérés. Les répondants à l'étude sont 95 % à pointer le risque économique comme risque principal, suivi du risque comptable pour 93 %. Dans un fonds de pension, « c'est la comptabilité qui dicte la politique de contribution du fonds et aussi la volatilité des engagements retraites dans le bilan », explique Samuel Sender, directeur d'étude de l'EDHEC-Risk Institute et auteur de l'étude. (...)"
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  • Commodities Now (June 2011)
    A Better Approach to Risk Management
    Article by Lionel Martellini, Scientific Director, EDHEC-Risk Institute and Professor of Finance, EDHEC Business School
    "(...) Recent market turbulence and its strong negative impact on wealth levels around the globe have led private and institutional investors to seriously question the value added by professional money managers. For more than 50 years, the industry has mostly focused on security selection decisions as a single source of added value. This has distracted the industry from another key source of added value, namely risk management. (...)"
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  • New Straits Times (Malaysia) (13/06/2011)
    Government ownership in banks needs to be reduced for long term growth, says economist
    "(...) Malaysia and other countries should consider reducing government ownership and intervention in banks as it will otherwise be detrimental to long term growth. In making the call, Professor of Finance at the EDHEC Business School in the Accounting, Law and Finance Department in France, Prof Florencio Lopez de Silanes said countries that are able to restructure their financial system faster and increase transparency in the system, will benefit in the long run. (...) Lopez de Silanes was here recently to give a talk on, “What Makes Banks Weak? Banking and its Regulation”, at the EDHEC Risk Institute, Singapore. (...) He pointed that government ownership in the banking system weakens the industry in the long term. He said based on research carried out by him and his colleagues, it was found that it is practically impossible to point to the long term benefit of government ownership for banks. (...)"
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  • Hedge Funds Review (June 2011)
    Speculative commodity indexes
    "(...) Ana-Maria Fuertes, Joëlle Miffre and Georgios Rallis discuss the performance and liquidity of maturity-enhanced commodity indexes. (...) In a recent working paper (Rallis, Fuertes and Miffre, 2011), we formally test the claim often put forward by second-generation index providers that these investment vehicles provide better performance than and similar diversification benefits and inflation hedging as first-generation indices. Our paper scrutinises index-enhancement strategies based on momentum, term structure and contract maturity. (...)"
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  • FTfm (03/06/2011)
    Debate rumbles on over merits of bets on the black stuff
    "(...) To back up his point, Mr Lejonvarn makes reference to a white paper written in 2009 by Hilary Till, a research associate with the EDHEC-Risk Institute, which comes to the conclusion that the balance of speculators in the US oil futures and options markets was not excessive relative to hedging in those markets from June 2006 until October 2009. Ms Till’s analysis relies on CFTC reports – which showcase market participant data for 22 commodity futures contracts about the time when the oil price reached more than $145 a barrel in the summer of 2008 – to examine the extent to which speculative position-taking occurred. At the crux of the argument is the idea that the economic function of commodities futures markets is primarily for hedging and fulfilling risk management needs. (...)"
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  • Exchange Traded Funds Magazine (02/06/2011)
    Dispelling ETF myths
    "(...) If you analyse the last EDHEC survey of European institutional investors, they want to use ETFs to increase their exposure to government and corporate bonds. They are also looking to access communities, real estate, alternatives and hedge funds; these trends will continue in the coming months and years. (...)"
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  • IPE (01/06/2011)
    Non-financial risks in the European fund management industry
    Samuel Sender discusses non financial risks in asset management and outlines some ways in which their effects can be countered
    "(…) Recent research carried out by EDHEC-Risk Institute as part of the Risk and Regulation in the European Fund Industry research chair, in partnership with CACEIS, examines the rise of non-financial risks in the fund industry. The research looks at how non-financial risks came under the spotlight, the differences in country regulations, the risks of badly drafted EU laws, and the ways of protecting unitholders from them. (…)"
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May 2011

  • Professional Pensions (26/05/2011)
    UK Pensions Awards 2011 - Equity Manager of the Year: AXA Framlington
    "(...) In 2010, AXA Framlington also collaborated on the EDHEC Survey of the asset and liability management practices of European pension funds. It said that, by supporting this project, AXA IM aims to raise awareness of potential weaknesses in the risk management practices of UK and European pension funds, while contributing to the industry's thinking on the development of best practices around risk management and ALM. Key conclusions drawn to date include: that the retirement system would be more stable if regulators were more willing to tolerate short-term risk, and that pension funds should build internal models for their investment strategies, as ultimately these models will be used in setting funding requirements. (...)"
    Copyright Professional Pensions [www.professionalpensions.com]


  • The Hedgefund Journal (May 2011)
    EDHEC London Days: Turning insight into investable products
    "(...) EDHEC-Risk’s Alternative Investment Days 2011, held at London’s Tower Hotel on 5th-6th April, showcased not only some of the latest EDHEC-Risk research but also gave asset managers the chance to explain how they were turning EDHEC’s insights into investable products. EDHEC itself will expand its range of investable indices with the creation of a new division, EDHEC-Risk Indices and Benchmarks, dedicated to this. This overview of the event draws out four key areas of discussion and some of the conclusions that were reached over the two days. (...)"
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  • IPE Asia (20/05/2011)
    Sponsors say default is biggest risk for pension funds
    "(…) Employers believe sponsor default is pension schemes' primary concern – but pension funds are failing to manage it, according to a report by EDHEC. The 100 fund survey of pension schemes and their sponsors found 77% of the total sample identified sponsor risk as pension funds' primary concern. Yet 84% of pension funds did not identify sponsor risk as a concern. Of those polled – with aggregate assets under management of around €730m – 46% held pension fund insurance. The majority of those polled operated defined benefit schemes. Among other reasons for their apparent unconcern, pension schemes said their scheme sponsor was a government or quasi-government entity, and 4% of respondents have purchased protection from sponsor insolvency. In contrast, 95% of scheme sponsors – a group with an aggregate balance sheet of more than €5.5trn – identified as their number one concern the economic risk of facing higher than expected pension costs. (…)"
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  • Professional Pensions (19/05/2011)
    Schemes not tackling sponsor risk
    "(...) The report The Elephant in the room: accounting and sponsor risk in corporate pension plans compiled by the EDHEC-Risk Institute found that 88% of UK respondents - and 77% of global respondents - identified sponsor default as their biggest risk. But 86% of all respondents had no strategy to hedge this risk with 9% following a dynamic strategy of shorting the sponsor's shares, 5% entering into credit default swaps and 2% buying put options. (...) The research - sponsored by Axa Investment Management - gathered responses from 100 schemes with assets under management of more than €730bn (£643bn) and sponsors worth more than €5.5trn. (...)"
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  • Les Echos (18/05/2011)  
    La mésaventure de RAB Capital inquiète les « hedge funds » cotés en Bourse
    "(...) « Etant donné que les "hedge funds" cotés doivent être plus transparents pour se conforrner à la réglementation des Bourses, cela peut indirectement inciter leurs gérants à prendre moins de risques que leurs homologues non cotés, ce qui allongera leur espérance de vie », note l'EDHEC Risk Institute. (...)"
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  • IPE Asia (08/05/2011)
    Promising future for ETFs in portfolio management
    "(…) EDHEC-Risk Institute – with the support of Amundi ETF – collected and analysed 192 responses from European investment professionals on their use and perceptions on ETFs and competing indexing instruments. The survey results reveal an increasing maturity of the ETF market. Felix Goltz, Head of Applied Research at EDHEC-Risk Institute observes, “It is interesting to note that the high and increasing usage of ETFs comes against a backdrop of equally high satisfaction levels. Even for asset classes where ETF satisfaction had dropped during the 2008 liquidity crisis – such as corporate bond and hedge fund ETFs – the satisfaction levels have reverted to the pre-crisis or even higher levels. (…)"
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  • Les Echos (11/05/2011)  
    Appelées de leurs voeux par les investisseurs, les obligations indexées sur l'inflation restent rares
    "(...) Les travaux de l'EDHEC, sponsorisés par Rothschild, apportent un éclairage conceptuel décisif au sens où ils montrent que les sociétés de secteurs (services aux collectivités locales, infrastructures, grande distribution, immobilier...) dont les revenus suivent l'évolution des prix gagneraient à émettre davantage d'obligations indexées sur l'inflation (lire l'interview ci-dessous). (...)"
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  • Les Echos (11/05/2011)  
    « Les secteurs dont les revenus sont corrélés à l'inflation devraient émettre davantage d'indexées »
    Interview de Lionel Martellini, Directeur Scientifique de l'EDHEC-Risk Institute
    "(...) Nos travaux, sponsorisés par Rothschild, montrent à cet égard qu'il n'est pas du tout utile d'avoir des vues sur l'évolution future des taux pour choisir la structure de dette optimale, c'est-à-dire sa répartition entre les divers types de dette (fixe, variable, mais aussi indexée sur l'inflation), dans la mesure où l'objectif du trésorier ne doit pas être la spéculation mais la couverture. La gestion de la dette ne devrait pas tant viser la réduction du coût de financement que la couverture des risques du taux d'intérêt et d'inflation auxquels est soumise la société. (...) Cette approche qui suppose d'inscrire les décisions de la gestion de la dette dans un cadre plus large, la gestion « actif-passif », a un impact significatif sur la valeur boursière de l'entreprise et son risque de faillite. (...)"
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  • Hedge Funds Review (May 2011)
    Idiosyncratic volatility and expected returns
    "(...) Lionel Martellini, Daniel Mantilla and René Garcia of the EDHEC-Risk Institute show how cross-sectional variance is a good proxy for the idiosyncratic variance obtained from the CAPM or the Fama-French models. (...) We revisit the issues regarding the dynamics and forecasting power of idiosyncratic variance by using instead the cross-sectional dispersion of stock returns using recent research drawn from the structured products and derivative instruments research chair at EDHEC-Risk Institute sponsored by the French Banking Federation (FBF). (...)"
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  • L'Agefi Hebdo (05/05/2011)  
    Matières premières : L'heure de la régulation a sonné
    "(...) Quoi qu'il en soit, de l'avis général, les marchés de matières premières, notamment de gré à gré, doivent être plus transparents. Les pistes de réforme sont connues. Le régulateur devrait pouvoir connaître les positions de chaque intervenant, et les publier de manière agrégée par catégories, selon une classification similaire à celle de la CFTC aux Etats Unis (commerciaux, vendeurs de swaps, money managers et autres). « Les régulateurs pourront ainsi surveiller le rôle de la spéculation dans les mouvements de prix, et prendre des mesures si nécessaire », assure Hilary Till, chercheur associée à l'EDHEC-Risk Institute.(...)"
    Copyright L'Agefi Hebdo [www.agefi.fr - French]


  • Ignites Europe (03/05/2011)
    Dutch SRI firm hires in France
    "(...) Supporters of SRI say it improves the risk management of portfolios and therefore their performance, but research published last year by EDHEC-Risk Institute suggested there was no evidence of outperformance by the majority of green and ethical funds. (...)"
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  • Pensions & Investments (02/05/2011)
    "Sponsor risk" needs spot in a DB plan's portfolio
    "(...) “Sponsor risk is the biggest risk for pension plans. Take a traditional defined benefit pension scheme, there's really only this one risk — the risk that the sponsor goes bankrupt,” said Samuel Sender, applied research manager at EDHEC-Risk Institute. Mr. Sender is the author of “The Elephant in the Room: Accounting and Sponsor Risks in Corporate Pension Plans,” published earlier this year. “What we're seeing is that many (fund executives) are not managing that risk.” (...) Although some corporate plans already have implemented ways of limiting sponsor risk, for example through liability-driven investing, most pension funds do not have a formal plan to minimize sponsor risk in the long term, said Mr. Sender. (...)"
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  • FTfm (02/05/2011)
    Traditional indices lose trust
    "(...) Three-quarters of European institutional investors view traditional market-capitalisation weighted equity and corporate bond indices as “problematic”, according to a survey by EDHEC-Risk Institute. Large investors believe cap-weighted equity indices over-invest in overpriced stocks, provide poor diversification and suffer from sector and size biases, with just 24.7 per cent of those surveyed saying they did not see such indices as problematic. In the fixed income world, investors are concerned about unreliable duration exposure, over-investment in high-risk companies, and liquidity. Only a quarter (23.6 per cent) of respondents are comfortable with traditional corporate bond indices and 35.1 per cent with those covering government bonds. (...)"
    Copyright Financial Times Fund Management [Full text]


  • Commodities Now (May 2011)
    Diversification matters... but not for risk
    "(...) Since the global financial crisis of 2008, improving risk management practices— management of extreme risks, in particular—has been a hot topic. The post-modern quantitative techniques suggested as extensions of mean-variance analysis, however, exploit diversification as a general method. Although diversification is most effective in extracting risk premia over reasonably long investment horizons and is a key component of sound risk management, it is ill-suited for loss control in severe market downturns. Hedging and insurance are better suited for loss control over short horizons. In particular, dynamic asset allocation techniques deal efficiently with general loss constraints because they preserve access to the upside. Diversification is still very useful in these strategies, as the performance of well-diversified building blocks helps finance the cost of insurance strategies. (...)"
    Copyright Commodities Now [Full text]


April 2011

  • Hedge Funds Review (April 2011)
    Short solutions
    "(...) The Risk Institute at French business school EDHEC says the effect of banning naked CDS shorts could be felt further afield than just financial markets. Countries will find it difficult to manage interest rate risk on their debt actively because counterparties would be barred from hedging the country risk of interest rate swaps they had entered into, EDHEC says. (...) Financiers of public or private entities that conduct business with sovereign bodies could find it impossible to hedge against default risk. “At a time when public-private partnerships and private financing of public infrastructure projects are considered one of the drivers of global growth, making it harder to manage country risk may at the very least increase the costs of these partnerships and this financing,” EDHEC says. (...)"
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  • Le Temps (30/04/2011)  
    En réponse à la crise, les cursus des masters en finance se réorganisent
    "(...) A l’EDHEC-Risk Institute également, la crise n’a guère eu d’impact sur la fréquentation des formations continues en finance. « Nous avons dû refuser des participants au séminaire sur les allocations d’actifs organisé à Londres début décembre avec le CFA Institute, explique Frédéric Ducoulombier. Quant à notre programme doctoral en finance, lancé il y a deux ans, il a reçu 140 candida­tures (+60%) pour la rentrée d’automne 2009, alors qu’une promotion compte 20 doctorants. » (...)"
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  • Risk.net (26/04/2011)
    EDHEC and Russell team up for Solvency II benchmark indexes
    "(...) In light of the new Solvency II directive set to come into force in January 2013, the EDHEC-Risk institute and Russell Investments aim to design Solvency II benchmarks to help insurance companies in Europe gauge their investment risks. The EDHEC-Risk institute has teamed up with Russell Investments to design a series of Solvency II benchmarks to help European insurance companies manage equity investment risks. The research aims to develop Solvency II benchmarks that will provide a risk management reference model to small and medium-sized insurance companies in the eurozone. Planned for publication by the end of the year, the benchmarks will be freely accessible and can be customised. (...)"
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    Les Echos (25/04/2011)  
    L'EDHEC au coeur de la City
    "(...) « Etre ici nous permet de tisser des liens encore plus étroits avec tous les grands acteurs de la City », explique Noël Amenc, directeur de l'EDHEC Risk Institute. Cette proximité va permettre à l'école de développer ses séminaires et de lancer de nouveaux projets, soutenus par les industriels du secteur. Une stratégie qui porte ses fruits. (...) Les travaux de l'école donnent lieu à la création d'indices et de « benchmarks » pour l'industrie financière, qu'elle commercialise dans le monde entier. « Notre modèle est très différent de celui des autres écoles », souligne Olivier Oger. Nous avons fait de la recherche une vraie ‘‘business unit'', qui est à la base de notre activité. Notre présence à Londres s'inscrit dans cette logique. » En attendant, peut-être, une implantation aux Etats-Unis, prochain objectif du groupe. (...)"
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  • L'Agefi (21/04/2011)  
    L'EDHEC-Risk et Russell Investments vont concevoir des benchmarks pour les assurances
    "(...) L'EDHEC-Risk Institute a annoncé, mercredi 20 avril, qu'il va mener des recherches en collaboration avec Russell Investments afin de concevoir de nouveaux benchmarks destinés aux compagnies d'assurance européennes et représentatifs d'une stratégie de répartition dynamique entre les obligations et les actions. Le but de cette initiative est de permettre à toutes les petites ou moyennes entreprises d'assurance européennes qui n'ont pas un modèle interne complet de limitation des risques de se rapporter à une référence objective universitaire afin de gérer le risque de leurs placements en actions. (...)"
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  • Insurance Journal (20/04/2011)
    EDHEC-Risk Institute, Russell Investments to Design Solvency II ‘Benchmarks’
    "(...)EDHEC-Risk Institute has announced that it will conduct research in cooperation with Russell Investments in order to “design new benchmarks for European insurance companies that are representative of a dynamic allocation strategy between bonds and equities.” “The aim of the initiative is to enable all small or medium-sized European insurance companies which do not have a full internal risk mitigation model to be able to avail of an objective academic reference in order to manage the risk of their equity investments.” EDHEC described the benchmarks as being “based on dynamic core-satellite and life-cycle investing techniques, will allow investors to respect a maximum drawdown or maximum loss limit for specific horizons.” (...)"
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  • The Asset (20/04/2011)
    EDHEC-Risk Institute to design Solvency II benchmarks
    "(...) According to Professor Noël Amenc, director of EDHEC-Risk Institute, “The Solvency II directive is severe for investment in equities. Our goal in this project supported by Russell Investments is to design a new form of asset allocation that will enable the risk of maximum loss of equity investments to be managed while avoiding an excessively pro-cyclical approach such as that advocated by portfolio insurance techniques. By integrating concepts proposed by research on the life cycle of assets, this allocation can serve as a reference for a partial internal model.” (...)"
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  • Global Money Management (12/04/2011)
    EDHEC Opens In London
    "(...) EDHEC-Risk Institute, the premier European centre for financial research and its application to the industry, has opened a London office to mark the launch of EDHEC Risk Institute–Europe. With the support of the financial Industry, EDHEC Risk Institute–Europe aims to continue to be the leading academic institution fostering innovation and high professional standards in the investment industry. The opening of the London office follows the launch of EDHEC Risk Institute–Asia in Singapore in January. (...)"
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  • FTfm (11/04/2011)
    Seeking an ethical side to short selling
    "(...) Academics have plenty to say on risk management, as on short selling. In fact, Lionel Martellini, professor of finance at EDHEC Business School, says the investment industry should switch its attention from generating alpha (outperformance through skill) to solving investors’ problems through risk management. “The key source of added value in investment management is risk management,” he suggests. For Prof Martellini, risk management is not just about models or measurement. The main focus is on getting to an investment objective via the best possible risk/return trade-off. It entails diversification, hedging and insuring. Who can argue with that? (...)"
    Copyright Financial Times Fund Management [Full text]


    Les Echos (07/03/2011)  
    L'EDHEC s'implante à Londres
    "(...) L'EDHEC vient d'inaugurer ses nouveaux locaux au coeur de la City, à Londres. Déjà présente en Angleterre depuis une dizaine d'années, l'école prévoit d'y déployer ses activités « executive » en finance : programme doctoral (PhD), séminaires de formation continue, cursus MSc en Risk and Investment Management destiné à des professionnels en activité. Une extension de son centre de recherche, l'EDHEC Risk Institute-Europe, y est également installée. Londres est la cinquième implantation du groupe, après Lille, Nice, Paris et Singapour, qui a été inaugurée en janvier. New York pourrait constituer la prochaine étape. (...)"
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  • IPE (07/04/2011)
    News: UK roundup
    "(…) French business school EDHEC Risk-Institute has marked the launch of its European Risk-Institute with the opening of its London base. The school, which opened a campus in Singapore last year, said its London outlet would serve as "platform for the continued generation and dissemination of academic insights". Professor Noël Amenc, director of EDHEC-Risk Institute, added: "With the benefit of our London presence, which brings us even closer to many of the financial institutions we collaborate with, we aim to further strengthen our record of pursuing academic excellence that provides tangible industry benefits." As part of its research outreach, the school is partnered with companies such as Russell Investments, Axa Investment Managers and BNP Paribas Investment Partners, as well as one of Canada’s largest pension funds, the CAD$107.5bn (€81bn) Ontario Teachers Pension Plan.(…)"
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  • Hedge Funds Review (April 2011)
    Risky pricing problems
    Article by Lionel Martellini and Vincent Milhau, EDHEC-Risk Institute
    "(...) Research – drawn from the “Structured Products and Derivative Instruments” research chair at EDHEC-Risk Institute (sponsored by the French Banking Federation) – addresses the problem of finding the reservation price and corresponding hedging strategy for an option position. It does this by an agent endowed with constant absolute risk aversion preferences in an incomplete market setting when a futures contract written on the underlying asset, or on some imperfectly correlated substitute for the underlying asset, is used in the dynamic replication of the option payoff. (...)"
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  • bfinance (04/04/2011)
    Shift to alternatives boosts 2010 performance
    "(...) Philippe Desfosses, director at France’s ERAFP, said that pension funds’ stubborn adherence to benchmarks provided ‘safety in numbers,’ but could lead to perverse outcomes. This had encouraged ERAFP to develop, in collaboration with EDHEC, an ISR Best in Class index which would incorporate an element of active risk management.(...)"
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  • Hedge Funds Review (04/04/2011)
    European rules on shorting could harm hedge fund strategies and investors
    "(...) The Risk Institute at French business school EDHEC says the effect of banning naked CDS shorts could be felt further afield than just financial markets. Countries will find it difficult to manage interest rate risk on their debt actively because counterparties would be barred from hedging the country risk of interest rate swaps they had entered into, EDHEC says. (...) Financiers of public or private entities that conduct business with sovereign bodies could find it impossible to hedge against default risk. “At a time when public-private partnerships and private financing of public infrastructure projects are considered one of the drivers of global growth, making it harder to manage country risk may at the very least increase the costs of these partnerships and this financing,” EDHEC says. (...)"
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  • IPE (01/04/2011)
    French civil service fund awards €1.3bn in equity mandates
    "(…) The Etablissement de Retraite Additionnelle de la Fonction Publique (ERAFP), France's supplementary pension scheme for civil servants, has awarded six mandates to asset managers including Amundi, BNP Paribas and Axa Investment Managers, totaling €1.3bn. First tendered in June last year, the awards are for a number of small to large-cap equity portfolios, ranging from €45m to €500m, and account for around a tenth of ERAPF's total value. (...) The scheme said of the awards: "The investment firms selected for the indexed management mandates must replicate the SRI Best in Class index put together by ERAFP in association with EDHEC [Business School]." (…)"
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  • IPE Special Supplement (April 2011)
    EDHEC-Risk Institute Research Insights Spring 2011
    • Alternative weighting schemes: conditions for optimality; Felix Goltz, Lionel Martellini
    • Efficient indexation: an alternative to cap-weighted indices; Felix Goltz, Patrice Retkowsky
    • Indices in institutional investment management: results of a European survey; Noël Amenc, Felix Goltz, Lin Tang
    • Institutional investors' views on exchange-traded funds; Felix Goltz, Lin Tang
    • Inflation-linked corporate bonds and the optimal design of debt programmes; Lionel Martellini, Vincent Milhau
    • Integrated approach to sovereign wealth risk management; Bernd Scherer

    Copyright IPE [www.ipe.com - Registration required]


March 2011

  • European Pensions (March/April 2011)
    A new era for the index
    "(…) Jennie Austin, director of relationship management at FTSE Group echoes these sentiments. “We are definitely seeing a move to fundamental and other alternative indices as well as an increasing demand for bespoke indices and those based on responsible investment. Other key focuses are on smoothing out volatility and protecting the down-side. In response to the former, we launched the FTSE EDHEC-Risk Efficient Index Series which aims to capture equity market returns with improved risk/reward efficiency compared to cap-weighted indices.” (…)"
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  • FTfm (28/03/2011)
    Action needed to shield investors from Ucits risk
    Article by Samuel Sender, applied research manager at EDHEC-Risk Institute
    "(...)Non-financial risks have been increasing since Ucits investment funds were first set up, but European authorities and investment professionals failed to study the impact of these risks when they facilitated the evolution of the funds. In recent research conducted by EDHEC-Risk Institute as part of the “Risk and Regulation in the European Fund Management Industry” research chair in partnership with Caceis, we looked at how non-financial risks and failures have impacted the regulatory agenda in Europe and traced the management of liquidity, counterparty, compliance, misinformation, and other non-financial risks in the fund industry. There are several reasons for the increase in non-financial risks in investment funds. One is the growing sophistication of the transactions and financial instruments involved. A second is the attempt to obtain returns above the risk-free rate from non-traditional assets (ie not stocks and bonds). A third is regulatory developments such as the eligible assets directive and the possibilities for leverage in sophisticated Ucits. (...)"
    Copyright Financial Times Fund Management [Full text]


  • IPE Asia (18/03/2011)
    New index initiatives from Russell and EDHEC
    "(…) Meanwhile, EDHEC-Risk Institute has announced the creation of EDHEC-Risk Indices & Benchmarks, which aims to be one of the leading beta designers for the investment industry. EDHEC’s office in Singapore will be involved in marketing this new service. Professor Noël Amenc, Chairman of the new spin-off says, “EDHEC-Risk Indices & Benchmarks hopes to be perceived as a concept and implementation provider for smart beta. We believe that the index and benchmarking research that EDHEC-Risk Institute has conducted since it was founded in 2001 has led to a series of products that provide more efficient and more academic-based solutions to investors’ needs.” In an environment where passive investment is becoming increasingly important, the selection of the right benchmarks will totally condition the risk-adjusted return of investors’ core allocation. Amenc says, “Being an informed passive investor thus assumes being attentive to the choice of benchmark. That is the context in which EDHEC-Risk Indices & Benchmarks has been set up.” (…)"
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  • Funds Europe (March 2011)
    Define your liabilities: splitting the portfolio
    "(…) Liability-hedging portfolios are poorly defined at nearly half of pension funds, and many have not defined their liabilities precisely, finds Samuel Sender of the EDHEC-Risk Institute. (...) A recent survey by EDHEC-Risk Institute – EDHEC Survey of the Asset and Liability Management Practices of European Pension Funds taken as part of the Regulation and Institutional Investment research chair in partnership with Axa Investment Managers – examines the ways ALM at pension funds makes use of modern investment management techniques. In short, we assess the ways European pension funds define investment policy, how they implement it, and how its performance is analysed. We thus shed light not only on the conception of the ALM strategy but also on the way it is implemented. (...)"
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  • Global Custodian (17/03/2011)
    Markets Cannot Function Effectively Without Short Selling
    "(...) A panel of academics hit out at the possibility of banning short selling, by saying that the financial markets would not be able to function effectively without the trading mechanism, while debating at the Data Explorers’, securities financing data and daily long and short institutional fund flow research firm, conference in London. (...) Ekkehart Boehmer, EDHEC Business School, used the daily shorting flow in the US markets to carry out their research, which found short selling accounts for a large proportion of trading activity, 28% in 2008. (...)"
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  • IPE (16/03/2011)
    EDHEC unveils Risk Indices & Benchmarks spin-off
    "(…) EDHEC Business School has launched a company to promote its indices, hoping its unique weighting methodology will appeal to passive investors. EDHEC-Risk Indices & Benchmarks (ERIB) will be a separate entity from the business school, allowing it to retain its independence. Talking exclusively to IPE, professor Noël Amenc, director of EDHEC-Risk Institute and chairman of the new group, said that while patenting research was not their main interest, it was to their benefit to reap the rewards of the school's established brand name and the research conducted. Amenc said other indices applied an "ad-hoc" approach and that the academic research conducted by EDHEC as a foundation for the benchmarks would serve investors well.(…)"
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  • Agefi Luxembourg (10/03/2011)
    EDHEC-Risk Institute receives Eurex support for new research on volatility derivatives
    "(...) According to Professor Stoyanov: “In 2008, worldwide equity markets collapsed and assets which conventional investment wisdom regarded as effective equity diversifiers also experienced dramatic falls. Meanwhile, equity volatility skyrocketed causing long positions in equity volatility derivatives to rally. These events dashed the exaggerated hopes placed in traditional forms of diversification and created interest in the possible use of volatility derivatives as diversifiers for traditional and alternative portfolios in general, and equity positions in particular. Against this backdrop, this new research project will look at how investors can use volatility derivatives to design equity portfolios with attractive downside-risk properties.” (...)"
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  • Financial News (09/03/2011)
    Fears grow over CDS restrictions
    "(...) In a statement issued yesterday, EDHEC Risk Institute, an academic think tank, added that the proposed rules could deter companies from financing major projects in foreign countries or entering into contracts with governments as they would not be able to hedge the default risk of their counterparties. (...)"
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  • Global Pensions (09/03/2011)
    European Parliament backs naked short selling ban
    "(...) The moratorium applies to shorting sovereign debt, where sellers do not simultaneously hold offsetting, long positions in that debt. National regulators fear the activity could cause mispricing and, in extreme cases, downwards price spirals, the EC says. But EDHEC said intermediaries and regulators will be unable to verify long positions the CDS hedge is assumed to cover. A ban makes it more difficult for countries to manage interest rate risk on their debt actively, because counterparties would be barred from hedging the country risk of interest rate swaps they had entered into, EDHEC added, saying "such active management of the yield curve is a major component in the optimisation of the cost of public debt." It added that defining "naked sales" too strictly will make it impossible for financiers to hedge the default risk of public or private entities they supported, where those entities did business with sovereign nations. "At a time when public-private partnerships and private financing of public infrastructure projects are considered one of the drivers of global growth, making it harder to manage country risk may at the very least increase the costs of these partnerships and this financing," EDHEC wrote. (...)"
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  • The Hedgefund Journal (08/03/2011)
    EDHEC: don’t ban naked CDS sales
    "(...) In an open letter addressed to the Chair of the Economic and Monetary Affairs Committee of the European Parliament, Sharon Bowles, and Pascal Canfin, the Committee’s Rapporteur on the draft EU regulation on short selling and credit default swaps, EDHEC-Risk Institute has warned of the dangers of prohibiting “naked” sales of sovereign credit default swaps. Besides the fact that the lack of convergence on these issues with the US authorities leaves little hope of the measures being effective, EDHEC-Risk Institute thinks that this ban would pose numerous problems and run up against legal and practical obstacles that would make it inapplicable or even counterproductive (...)"
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  • Le Monde (07/03/2011)  
    Avec des profits record, les fonds spéculatifs ont bien tourné la page de la crise de 2008
    "(...) Les grands gagnants de ces dernières années sont ceux qui ont su identifier les grands mouvements de capitaux comme les fonds dits Global macro ou « CTA ». En utilisant des algorithmes, ils anticipent et suivent une tendance sur l'or, le pétrole ou le marché de la dette. Que la Bourse s'effondre, que la crise des dettes souveraines sévisse ou que le pétrole flambe et ces as de la finance parviennent à s'enrichir quand tout le monde s'appauvrit. « Les hedge funds peuvent profiter d'une hausse ou d'une baisse des marchés, finalement ce qui les rend moins performants, c'est l'absence de tendance », commente Noël Amenc, professeur de finance à l'EDHEC. (...)"
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  • FTfm (07/03/2011)
    Hedge fund indices’ accuracy in question
    "(...) Industry-wide performance indices are an excellent recruiting sergeant for the hedge fund industry. These indices, published by a number of data providers, typically boast attractive annualised double-digit returns with scarcely a down year, the industry’s annus horribilis of 2008 excepted. But how confident can investors be that these indices provide a true reflection of the returns of the underlying hedge fund industry? The EDHEC-Risk Institute, an arm of France-based EDHEC Business School, stirred the pot recently when it stated that “the performance of multi-strategy indices whose portfolios included illiquid [or less liquid] strategies was extraordinarily overstated after mid-2008”. Felix Goltz, head of applied research at EDHEC added: “It is more and more difficult to justify the use of non-investable composite indices as benchmarks unless we can suggest a practical and easy-to-implement solution that could substantially reduce the biases that overstate their performance, especially in periods of market stress.” (...)"
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    Les Echos (07/03/2011)  
    « Nous serons le seul français à participer à la compétition mondiale dans le secteur des indices »
    Interview avec Noël Amenc, Directeur de l'EDHEC-Risk Institute
    "(...) Dans le cadre de sa politique Recherche pour le business, l'EDHEC a créé en 2001 EDHEC-Risk Institute pour mener à bien des travaux de recherche appliqués à la finance. Cette émanation de la grande école de commerce vient à son tour de lancer EDHEC-Risk Indices & Benchmarks, sa première « spin off ». Noël Amenc, son directeur, explique la genèse du projet et les ambitions. (...) « Nous voulons être un des apporteurs d'idées et de nouvelles techniques pour les fournisseurs d'indices, les investisseurs et les gérants d'actifs. » (...) « Alors que la gestion passive connaît un très fort développement, nous souhaitons favoriser l'émergence d'une nouvelle série de « benchmarks » qui sont de fait la principale source de rendement ajusté du risque pour les mandats de gestion ou les fonds passifs. Notre idée est de travailler avec des fournisseurs d'indices comme, par exemple, FTSE, pour traduire notre recherche dans des indices investissables que ces derniers commercialiseront et diffuseront. » (...)"
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    Les Echos (07/03/2011)  
    Quand la gestion active s'immisce dans les indices
    "(...) « Ce qui va changer à l'occasion de la remise sur le marché de nos mandats actions zone Euro, c'est notre souci de compléter une gestion classique dite "active benchmarkée" par deux approches novatrices », annonce Philippe Desfossés, directeur de l'Etablissement des retraites additionnelles de la fonction publique (Erafp). La première consiste à communiquer aux gestionnaires l'univers d'investissement (la liste des titres retenus après application du filtre ISR maison). Ce sera donc une gestion non benchmarkée. Dans la seconde approche, l'organisme demandera aux gestionnaires retenus de répliquer un indice ISR conçu par lui en coopération avec l'EDHEC. « Ce ne sera pas un indice pondéré par la capitalisation mais un indice dont les pondérations seront déterminées en prenant en compte le risque des titres qui le composent », souligne Philippe Desfossés qui laisse entendre qu'il est tout à fait possible que cet indice suscite l'intérêt des promoteurs d'ETF pour proposer un produit de même inspiration. (...)"
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  • Hedge Funds Review (March 2011)
    Risky business
    Article by Samuel Sender, applied research manager at EDHEC- Risk Institute
    "(...) Recent research carried out by EDHEC-Risk Institute looked at some of the weaknesses in the European fund management industry. This found the Ucits directive fails to make adequate allowances for the operational consequences of financial innovation and that non-financial risk has increased, with regulations contributing to this rise. The research also found that the determination to harmonise the depositary liability regime has not yet been fully transposed into regulation and should not mask the need to manage non-financial risks throughout the fund management industry. Finally, the research discovered it is imperative to strengthen incentives to manage risk where risk is created. This article examines more issues that are of fundamental importance to the fund management industry. These include linking the strengthening of capital requirements and the improvement of information to the evaluation of non-financial risks, strengthening fund governance and the representation of unitholders, improving methods of managing non-financial risks and reducing European regulatory arbitrage. (...)"
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    Les Echos (05/03/2011)  
    Mark Makepeace (FTSE) : « Presque tout peut servir de support à un indice, de l'art au secteur technologique »
    "(...) La création de la gamme FTSE EDHEC-Risk Efficient Index Series était le fruit de notre collaboration avec l'EDHEC-Risk Institute. Les indices sont basés sur le ratio de Sharpe, du portefeuille optimal et d'autres aspects de la méthodologie du groupe de recherche. En incorporant cette méthodologie dans un indice FTSE, nous nous sommes assurés que les indices soient à la fois robustes sur le plan de la qualité et performants du point de vue du marché. (...)"
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  • Exchange Traded Funds (03/03/2011)
    EDHEC-Risk Institute receives Eurex support for new research on volatility derivatives
    "(...) EDHEC-Risk Institute (London, Nice, Singapore) has announced it will be conducting new research exploring the uses of volatility derivatives in equity portfolio management with the support of leading derivatives exchange Eurex. The research project’s emphasis will be on optimising access to the equity risk premium while controlling for downside risk and will be co-managed by Stoyan Stoyanov, head of research at EDHEC Risk Institute–Asia and Lionel Martellini, scientific director of EDHEC-Risk Institute. (...)"
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February 2011

  • Financial Times (21/02/2011)
    Sovereign wealth funds make presence felt
    Article by Lionel Martellini and Vincent Milhau
    "(...) It is now widely recognised that sovereign funds are a dominant force on international financial markets. Some estimates say they manage assets worth $4,000bn – or slightly more than twice the estimated size of the hedge fund industry. Post-crisis estimates suggest the total will rise to $7,000bn by the end of the decade. This rapid growth of sovereign wealth funds and its implications poses a series of challenges for the international financial markets, and also for sovereign states. In particular, an outstanding challenge is to improve our understanding of optimal investment policy and risk management practices for sovereign wealth funds. Recent academic research conducted by EDHEC-Risk Institute in co-operation with Deutsche Bank suggests it is desirable to analyse the optimal investment policy of a sovereign wealth fund in an asset-liability management framework. (...)"
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  • Financial News (07/02/2011)
    EDHEC corrects distortion of fund performance figures
    "(...) EDHEC-Risk Institute, one of the leading European business schools, has come up with a new way of correcting misleading hedge fund performance figures. It has highlighted three ways in which hedge fund performance in non-investable indices have been flattered. One of the most common is the “survivorship bias”, where poorly performing funds simply stop reporting numbers. Another is when funds that have closed down or blown up are then pulled from a database. The third is when a fund that has done well is included in the database retrospectively. (...) EDHEC proposes comparing the monthly returns of the EDHEC (non-investable) composite indices and the average monthly returns of a set of investable indices from a range of providers for each underlying strategy. The model consists of regressing the returns of the non-investable EDHEC-Risk Alternative Index on the returns of the corresponding investable indices. (...)"
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  • Funds Europe (February 2011)
    EDHEC research: the rise of non-financial risk
    "(…) Samuel Sender, of EDHEC-Risk Institute, looks at the issue of eligible assets in Ucits funds and the problems of misselling. (...) Ucits regulation was originally constructed from country regulations when funds invested mainly in domestic-listed securities, and when depositaries could hold all assets in custody. With the increasing sophistication of fund management techniques and the number of asset classes, investment fund managers started to invest in derivatives and extended their holdings of securities to geographies that required local custody. The legislative framework was unsuited to managing the risks arising from industry change. After all, the continuous evolution of funds makes non-financial losses all the more likely. In recent research conducted as part of the Risk and Regulation in the European Fund Management Industry research chair, supported by Caceis, EDHEC-Risk Institute has looked at how non-financial risks and failures have impacted the regulatory agenda in Europe. (...)"
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  • Exchange Traded Funds Magazine (04/02/2011)
    ETFs - weight change
    "(...) According to Felix Goltz, head of applied research at the EDHEC-Risk Institute, the cap-weighted approach is even more of a problem in emerging than developed markets. “In emerging markets the problems with cap-weighted are even more severe. You can see that typically differences in performance are even greater in emerging markets,” said Goltz. Using a cap-weighted index in emerging markets would have returned just under 13% yearly over the last five years. Swapping that for the FTSE EDHEC Risk Efficient benchmark would have produced around four extra percentage points in performance, according to Goltz. Yet cap-weighting, despite its drawbacks, continues to account for the majority of assets held in ETFs. “You can see the market is dominated by cap-weighted indices,” said Goltz. As more investors venture into fixed income and emerging markets, where the arguments against cap-weighting are even stronger than elsewhere, new benchmarks look set to emerge and gain traction. (...)"
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  • New Model Adviser (February 2011)
    Volatility in markets has become the new normal
    "(…) The EDHEC-Risk Institute echoes these comments with its research into risk management used by private client managers. The Nice-based institute proposes that wealth managers could learn lessons from the approach of institutional pension funds by focusing on real assets and switching their focus from the value of the assets to the objectives of clients. (…)"
    Copyright New Model Adviser [New Model Adviser]


  • IPE Asia (03/02/2011)
    You need three different portfolios
    Article by Professor Lionel Martellini, scientific director of the EDHEC-Risk Institute, and Dr Vincent Milhau, research engineer
    "(…) An SWF’s investment strategy should include three building blocks. (The proportion of assets allocated to each of the portfolios will vary will vary dynamically depending on each country’s changing circumstances.) Firstly there should be a performance-seeking portfolio (PSP). Typically this will invest heavily in equities. Secondly, SWFs should have an endowment-hedging portfolio (EHP) to protect against variations in revenue. Thirdly, a liability-hedging portfolio (LHP) is needed, to invest in bonds for interest rate hedging, and in assets that protect against inflation if liabilities are likely to increase in line with prices. (…)"
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  • Le Monde (02/02/2011)  
    L’EDHEC ouvre un campus à Singapour
    "(...) L’EDHEC a inauguré le 21 janvier un nouveau campus dans le quartier des affaires de Singapour. L’institution lilloise y a exporté son programme “école de commerce”, mais également un « Risk Institute », centre de recherche spécialisé dans la finance et les hedge funds. « L’influence croissante des marchés et des investisseurs asiatiques exige que soit menée, depuis cette région du monde, une recherche académique tournée vers les besoins de l’industrie financière » a souligné Noël Amenc, directeur d’EDHEC-Risk Institute. (...)"
    Copyright Le Monde [Full text - French]


  • Hedge Funds Review (February 2011)
    Regulation has not kept pace with innovation in the fund management industry
    Article by Samuel Sender, applied research manager, EDHEC-Risk Institute
    "(...) Recent research carried out by EDHEC-Risk Institute has examined the question of non-financial risks in the hedge fund and traditional fund management industry. The Ucits directive fails to make adequate allowances for the operational consequences of financial innovation. Investment funds have diversified internationally, made growing use of derivatives and other sophisticated strategies and evolved in other ways. EU regulators (eligible assets directive) and EU recommendations (recommendation on sophisticated Ucits that can make more extensive use of leverage) have recognised or even favoured these changes. However, they have failed to do studies on their impact and have failed to modify the existing regulations to reflect these changes. (...)"
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January 2011

  • Financial Times (30/01/2011)
    Insurers gear up for new charges
    "(...) New regulations governing the European insurance industry could lead to a wave of selling of corporate bonds and equities, commentators believe. (...) The Solvency II directive, which sets new requirements on capital adequacy and risk management for insurers, aims to change investment behaviour by imposing varying capital charges on assets. Equities will need to be backed by reserves of 30-40 per cent, while European sovereign debt is deemed risk free. (...) Samuel Sender of the EDHEC-Risk Institute added: “Corporate bonds will not be used really to hedge liabilities. If you are holding corporate bonds you are taking an extra risk.” (...) Mr Sender added: “Insurance companies invest in low risk hedge funds to diversify. If you have a higher capital charge, regulation almost prevents you from doing that. You will have a shift away from less risky investments.” (...)"
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  • Professional Pensions (27/01/2011)
    Institutional investors look to increase hedge fund exposure
    "(...) The results come as the latest EDHEC-Risk Alternative Indexes on hedge funds showed implicit market volatility dropped by over a quarter (17.8%) in December, last year. (...)"
    Copyright Professional Pensions [www.professionalpensions.com]


  • Ignites Europe (26/01/2011)
    More understanding of non-financial risks needed: EDHEC
    "(...) The asset management industry needs a better understanding of non-financial risks, according to the director of EDHEC-Risk Institute. So reports La Tribune. In an interview with the French newspaper, Professor Noël Amenc says players all along the value chain must take responsibility for risks that the fund sector appears to have underestimated since the onset of the subprime crisis in 2007. Mr Amenc says a “principle of subsidiarity” must make each entity financially responsible for “the negative consequences of its actions or inaction”. Such a system is eminently preferable to one where a single entity “with deep pockets” – usually the fund depository – is able to clean up the mess of all parties that play a role in managing a fund, he adds. This absolves fund managers of responsibility in choosing a counterparty or managing collateral, insists Mr Amenc. (...)"
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  • Risk.net (25/01/2011)
    EDHEC-Risk Institute makes Asian debut in Singapore
    "(...) EDHEC-Risk Institute has opened its first Asian office in Singapore and named Frederic Ducoulombier the director of the EDHEC-Risk Institute Asia, heading the operations and business development of the risk research institution in the region. Ducoulombier will be based in Singapore and report to London-based Noel Amenc, director of EDHEC-Risk. The institute is planning to conduct research on the uses of volatility derivatives in equity portfolio management and also volatility indicators for Asia. it will also research extreme risk measures for hedge funds and volatility risk exposure of hedge funds. Amenc said the growing influence of Asian markets and investors requires more industry-relevant academic research be performed in the region. (...)"
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  • Top 1000 Funds (25/01/2011)
    New research on sovereign funds from EDHEC Asia
    "(…) New thematic research programs examining sovereign investment funds management and a more general initiative on best investment practices will be a part of the academic work of the recently opened Asia office of Europe’s EDHEC-Risk Institute. The Institute’s Singapore office, complementing its London and Nice offices, was officially opened last week by Heng Swee Keat, managing director of the Monetary Authority of Singapore. (...) In terms of its research, the office will be working to adapt the Institute’s six existing research programs to the peculiarities of Asia as well as the new programs. Professor Noel Amenc, director of the Institute, said the new programs would examine sovereign investment vehicle management and inflation and survey risk and investment management practices in the context of a new initiative, called the ‘Asian Research and Advocacy Centre for Best Investment Practices’. (…)"
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  • L'Agefi Suisse (25/01/2011)  
    La finance après la crise financière
    "(...) L'institut de Banque et Finance de l’Université de Lausanne a organisé une conférence sur la gestion d’actifs et la gestion des risques après la crise financière. (...) La deuxième partie de la conférence a porté sur la modélisation des risques financiers. René Garcia, professeur à l’EDHEC Business School à Nice, a présenté une nouvelle mesure du risque idiosyncratique des actifs financiers, c’est-à-dire de la composante du risque qui est indépendante de l’évolution du marché dans son ensemble. Le risque idiosyncratique bénéficie d’un statut spécial car la théorie suggère qu’il ne devrait pas être rémunéré, puisqu’il est diversifiable. René Garcia et ses collègues montrent que ce risque idiosyncratique peut être mesuré à partir de la variance des chocs à travers les titres. Ils montrent ensuite que ce risque permet de prédire dans une certaine mesure les rentabilités futures. (...)"
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  • FT Investment Adviser (24/01/2011)
    Big buy-out firms are worst performers
    "(...) EDHEC ranked the data in terms of the number of investments held simultaneously, a proxy for the size of a private equity firm. In the 10 per cent of cases where the fewest investments are held simultaneously, the median internal rate of return is 36 per cent a year. Almost 40 per cent of these investments deliver gross returns above 50 per cent a year, while just 7 per cent collapse into bankruptcy and a further 6 per cent lose money. At the opposite end of the scale, where the roster of portfolio companies is the largest, the internal rate of return falls to just 16 per cent. Less than a fifth of investments yield returns greater than 50 per cent, 12 per cent of portfolio companies go bankrupt and a further 19 per cent of investments result in losses. (...)"
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  • The Hedgefund Journal (24/01/2011)
    EDHEC-Risk calls for more attention to non-financial risks
    "(...) A new study conducted by EDHEC-Risk Institute as part of the “Risk and Regulation in the European Fund Management Industry” research chair in partnership with CACEIS, entitled “The European Fund Management Industry Needs a Better Grasp of Non-Financial Risks,” looks at how non-financial risks and failures have impacted the regulatory agenda in Europe and traces the management of liquidity, counterparty, compliance, misinformation, and other non-financial risks in the fund industry. (...)"
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  • La Tribune (24/01/2011)  
    « Gérer les risques non financiers suppose de responsabiliser tous les acteurs »
    Entretien avec Noël Amenc, directeur de l'EDHEC-Risk Institute
    "(...) Dans un entretien accordé à « La Tribune », le professeur de finance revient sur le développement de tels risques et sur le rôle que doit jouer l'Esma, l'autorité de supervision européenne. (...) Avec la crise, les risques non financiers se sont développés dans l'industrie de la gestion d'actifs qui semble les avoir sous-estimés et, par conséquent, mal appréhendés. Dans le cadre d'une chaire de recherche consacrée à ce type de risques, soutenue par la banque dépositaire-conservation Caceis, l'EDHEC-Risk Institute a mené une étude indiquant que « l'industrie de la gestion de fonds européenne avait besoin d'une meilleure connaissance des risques non financiers ». (...)"
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  • Ignites Europe (19/01/2011)
    Ucits framework riddled with danger: study
    "(...) The Ucits regime is riddled with dangerous holes that pose a safety risk to investors, says the author of a new study on the European fund industry. Ucits funds have become increasingly sophisticated over the past few years, and that fact has slipped the attention of EU policymakers, warns Samuel Sender, applied research manager at EDHEC-Risk Institute. The emergence of counterparty, liquidity and sub-custody risks have not been followed up with adequate rules to protect investors, Mr Sender believes. “A lot of (investor protection) objectives were talked about for (Ucits), but regulators haven’t put their words into action,” he says. “(Current) regulations have huge holes in their safety nets.” In the study, available in our research archive, EDHEC says making risks clearer to investors would force managers into becoming more accountable. Mr Sender says the current reporting requirements under the Ucits regime are not sufficient to keep investors well informed. (...)"
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  • IPE (18/01/2011)
    Hedge funds outperform S&P 500 over three years
    "(…) EUROPE – The majority of hedge funds delivered better returns than the S&P 500 index over a three-year period, according to latest figures by EDHEC Business School. EDHEC analysed performance data for a number of investment strategies – including convertible arbitrage, CTA global, equity market neutral and long/short equity – and found that distressed securities offered the highest returns, closely followed by convertible arbitrage. Author of the study, Patrice Retowsky, said a "wave of optimism" had struck the stock market in December 2010, followed by a 6% increase in the S&P 500, which gained 15% over the entire year, rising to pre-crisis levels. (…)"
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  • Hedge Funds Review (January 2011)
    Overstated indexes
    Article by Philippe Malaise, professor of finance, EDHEC Business School, and Felix Goltz, head of applied research, EDHEC-Risk Institute
    "(...) The biases that inflate the performance of hedge funds have been well documented in the financial literature. Survivorship bias, which results from the ex post exclusion of unsuccessful funds from databases, is clearly one of the greatest causes of grossly overstated performance. Considering the returns of surviving funds alone leads to a strong upward bias, according to recent studies (up to 442 basis points (bp) as demonstrated by Malkiel and Saha (2005)). Backfill bias or instant history bias, which occurs when the historical performance of a successful fund is suddenly and retroactively added (backfilled) into the database, also distorts the performance of the hedge fund industry (up to 435bp as shown by Posthuma and van der Sluis (2004)). These biases are not negligible and tend primarily to inflate the returns posted by non-investable hedge fund indexes. This has led to the recent development of investable hedge fund indexes that can help investors mitigate the effects, which are never done away with entirely, of these biases. (...)"
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  • Financial Times (17/01/2011)
    Big buy-out firms poor performers
    "(...) The world’s largest private equity groups deliver the worst returns for investors, according to analysis of 7,500 investments over the past 40 years. The research, conducted by the EDHEC-Risk Institute, an arm of France’s EDHEC Business School, found firms that hold a large number of investments simultaneously “underperform substantially”. The study, Giants at the Gate, also found returns from private equity investment in emerging markets are significantly below those in developed markets, potentially undermining the industry’s ongoing push into the fast-growing Asian markets. The report’s key finding was that “the scale of private equity firms is a significant and consistent driver of returns. Small investments outperform large.” EDHEC ranked the data in terms of the number of investments held simultaneously, a proxy for the size of a private equity firm. (...) EDHEC concluded, as private equity firms become bigger, communication becomes difficult and senior managers have less time for each portfolio company. “It is possible that the quality of the communication and the attention provided to [a given] investment may be lower, ultimately leading to poorer performance,” it said. (...)"
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  • Agefi Luxembourg (12/01/2011)
    New EDHEC-Risk Institute research provides a suggestion for remedying the overstated performance of non-investable hedge fund indices
    "(...) In the study, EDHEC-Risk Institute suggests a practical and easy-to-implement solution that could substantially reduce the biases that overstate the performance of non-investable indices, especially in periods of market stress. The solution involves a useful strategy by strategy adjustment between the non-investable EDHEC Alternative Indices and their investable equivalents. The model consists of regressing the returns of the non-investable EDHEC-Risk Alternative Index on the returns of the corresponding investable indices. The fraction of variance explained by the non-linear models varies from 43% to 82%. (...)"
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  • The Hedgefund Journal (10/01/2011)
    EDHEC-Risk: Remedy for overstated indices
    "(...) In a new study entitled “A Suggestion for Remedying the Overstated Performance of Non-Investable Hedge Fund Indices,” EDHEC-Risk Institute examines whether the liquidity crisis that followed the Lehman collapse and significantly impacted the performance of hedge fund strategies (especially the strategies exposed to credit risk) has increased this excess return or not. The study compares the excess returns of non-investable indices and those of their investable counterparts before and after 2008. The results show a striking contrast between liquid and illiquid strategies. (...)"
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  • IPE (January 2011)
    Beta-zero fees
    "(…) Bernd Scherer tells Martin Steward that asset managers should take a good look at – and possibly hedge – the market risk embedded in their fees. How might that change the relationship with clients? (...) Many asset management companies went bust thanks to the financial crisis. No wonder many more are now taking a closer look at their key business risks. “Sometimes it takes a catalyst to create awareness – and P&L is an excellent teacher,” says Bernd Scherer, professor of finance at the EDHEC Business School and former Morgan Stanley managing director. (…)"
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EDHEC-Risk Alternative Indexes: Oct 2014 (Estimates)
Conv. Arb. -1.18%
CTA Global 0.56%
Dist. Sec. -1.61%
Emg. Mkts -0.06%
Eq. Mkt Neut. 0.22%
Event Driven -1.72%
Fix. Inc. Arb. -0.08%
Global Macro -0.14%
L/S Equity 0.00%
Merger Arb. -1.45%
Rel. Value -0.64%
Short Selling -2.04%
FoF -0.64%

EDHEC-Risk IEIF Commercial Property: October 2014
Price (FR) 0.30%
Total Return (FR) 1.59%