Run by a team of professional management consultants who together have more than 60 years of experience in the capital markets and asset management industries, Edhec-Risk Advisory provides state-of-the-art solutions in a pragmatic way.

Leveraging the high level of expertise developed within the Edhec Risk and Asset Management Research centre, Edhec-Risk Advisory supports the major industry players in meeting the challenges of risk management and accompanies buy-side firms together with their service providers from strategy inception to system implementation with a unique blend of expertise that can not be found within traditional consultancy firms.

Genesis of the initiative

If it is true and widely recognised that the asset management industry is going through a severe economic crisis due to the diminution of assets under management, pressure on management fees and the absence of efficient management of their cost base, these difficulties are even less well accepted in that the value propositions of the industry are being challenged by investors. On the one hand, the industry is reaching the limits of the commercial offerings that are widely publicised and that favour management objectives too close to indices, where high management fees and high portfolio turnover costs do not find a natural justification in light of the mediocre returns offered. Moreover, the industry has not yet widely embraced the broad possibilities offered by management techniques based on derivatives that enable products to be built with different risk profiles.

On the other hand, the alternative management industry that leads the innovation race has not yet solved the numerous issues that are limiting its generalisation, such as the lack of a recognised regulatory framework, high management costs and high levels of extreme risk such as option risk, volatility risk, liquidity or operational risk.

As a result, more than simply consolidation, the natural consequence of over-fragmentation and tight economic times, the industry is facing a complete reshaping and has to re-invent itself dramatically. Rather than following the traditional active vs. passive segmentation, we believe the industry will converge towards a model closer to the reality of the management process. It seems clear that the consolidation is following the core-satellite model where asset managers might either position themselves on the one hand as providers of tracker funds, products with low margins but very large economies of scale or, on the other hand as producers of extremely actively managed funds for which higher management fees, if not linked to performance, make sense. This model, however, also requires the emergence of a third party, assembling the various components available on the market and in charge of strategic allocation, selecting the providers, as well as conducting risk and performance monitoring on behalf of the final investor. In this context, it becomes clear that these asset managers, and their various service providers, will have to establish clear differentiating capabilities such as the capacity of managing risk on an industrial basis.

Additionally, recent regulatory changes such as UCITS III, the European Capital Adequacy rule and the revision of the European Investment Services Directive, represent major factors that need to be considered by asset managers in the context of a tight economical situation and fierce competition with Investment Banks, who are much more advanced in the art of managing these challenges.

The risk management discipline is moving onto the agenda of investment managers who have very recently started investing in the infrastructure required to support a risk-aware organisation. More commercial offerings are structured around the specific risk profiles of the product ranges (structured products, asymmetric risk profiles, etc).

These structural changes are not minor as they will affect all levels of the organisation, from governance, to organisation and operations, and will require the implementation of more complex information technology. These changes will be even more brutal in that the regulator is closely monitoring the developments happening in the industry and driving the change through new legislation.

But the fundamental question for asset managers will be the strategic choices they will make with regards to implementation. Solutions developed in the risk management discipline are not always mature and the difficult balance between the disciplined mathematical frameworks and pragmatic operational solutions will be hard to achieve.

A straightforward response to challenging debates

Our offerings are targeted at the asset management industry in its widest definition. This does include pure institutional and retail asset managers, but also hedge funds, pension funds, insurance companies and private banks as well as their main service providers such as brokers, custodians, administrators and transfer agents who wish to transform their service offerings.

Most challenges of the industry happen to be at European level (from regulatory to competition). We are therefore positioning ourselves as service providers on a European basis. With offices in Paris, London and Nice, the Group is building a true European capability that supports this strategy.

The consultancy paradigm shift

Our clear differentiation factor lies in the fact that we have combined academic, research and industrial expertise in a discipline that requires high levels of focus. By nature, we are involved in the very early stages of research into the various issues related to risk management and are accompanying our clients in the development and implementation of solutions in a true industrial environment.

The foundations of Edhec-Risk Advisory are built on three founding principles:

• Pragmatism in the search for solutions to implement adequate changes in the governance, organisation and system.
• Selection of unique international expertise in the quantitative and qualitative risk management disciplines.
• Development of synergies between the academic and research expertise of Edhec with the professional experience of industry consultants.

The path to a successful initiative

A challenging environment

• ABN-AMRO (UK)
• Euronext (FR)
• Fonds de Réserve pour les Retraites (FR)
• Misys (FR)
• Petercam Capital (UK)
• Reuters (UK)
• The New Millennium Group (UK)
• The Alternative Investment Management Association (UK)

High-Profile projects

• Strategic study on the use of Exchange Traded Derivatives in the context of active fixed income portfolio management.
• Development of a Prime Brokerage blueprint, market and competitive analysis.
• Strategic positioning of software and data services targeting the hedge fund industry.
• Definition of the entire service offering of a UK brokerage firm with regards to Direct Market Access and Algorithmic Trading capabilities.

• Development of an Operational and Technology blueprint for providing administrative services to hedge funds, development of the implementation roadmap.
• Selection of an independent organisation for controlling execution costs.
• Development of an Operational and Technology blueprint for servicing hedge funds.
• Development of a framework for assessing brokerage services and allocating execution flows.

• Design and specifications of a system for controlling execution costs post-trade and allowing for automated pre-trade routing decisions.
• Support for implementing an advance Value at Risk system for pre-trade risk analysis and ex-ante tracking error analysis.
• Design of an operational dashboard for wholesale services.
• Development of a set of requirements related to the implementation of a state-of-the-art risk management infrastructure for a fund of hedge funds.
• Design and implementation of a central Transaction Database aiming at consolidating trades intra-day and providing an instant snapshot of exposures for risk management purposes.

• European survey on Best Execution.
• European survey on buy-side attitude towards algorithmic trading.
• European study of investors' needs with regards to cash and collateral management.