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Newedge "Advanced Modelling for Alternative Investments" Research Chair
CME Group "Exploring the Commodity Futures Risk Premium: Implications for Asset Allocation and Regulation" Strategic Research Project
SGCIB "Structured Equity Investment Strategies for Long-Term Asian Investors" Strategic Research Project
Asset Allocation and Derivative Instruments
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FBF "Structured Products and Derivatives" Research Chair
Eurex "The Benefits of Volatility Derivatives in Equity Portfolio Management" Strategic Research Project
ALM and Asset Management
AXA Investment Managers "Regulation and Institutional Investment" Research Chair
BNP Paribas Investment Partners "ALM and Institutional Investment Management" Research Chair
Deutsche Bank "Asset-Liability Management Techniques for Sovereign Wealth Fund Management" Research Chair
Ontario Teachers' Pension Plan "Advanced Investment Solutions for Liability Hedging for Inflation Risk" Research Chair
Rothschild & Cie "The Case for Inflation-Linked Corporate Bonds: Issuers' and Investors' Perspectives" Research Chair
Russell Investments "Solvency II Benchmarks" Research Chair
La Française AM "Dynamic Allocation Models and New Forms of Target-Date Funds for Private and Institutional Clients" Research Chair
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Best Execution: MiFID and TCA
Mitigating Hedge Funds Operational Risks
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Alternative Investments Seminar, Singapore, 6-9 February, 2012
CFA Institute/EDHEC-Risk Institute Advances in Asset Allocation Seminar, San Francisco, 6-8 March, 2012
EDHEC-Risk Days Europe 2012, London, 27-29 March, 2012
Alternative Asset Allocation Seminar, New York, 11-13 April, 2012
Advances in Equity Portfolio Construction Seminar, London, 19-20 April, 2012
State-of-the-Art Commodities Investing Seminar, Singapore, 23-24 April, 2012
EDHEC-Risk Days Asia 2012, Singapore, 9-10 May, 2012
CFA Institute/EDHEC-Risk Institute Advances in Asset Allocation Seminar, New York, 12-14 June, 2012
Advanced Commodity Investment Seminar, London, 19-20 June, 2012
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Academic Research
After the success of the last EDHEC-Risk Institutional Days and EDHEC-Risk Alternative Investment Days, which attracted more than 800 investors and investment professionals from all over Europe and beyond, and in order to better satisfy the requirements of institutional investors, EDHEC-Risk Institute has decided to merge its two annual conferences into a unique three-day event in Europe, the EDHEC-Risk Days Europe, which will take place at the Brewery in London in March 2012 (27-28-29). EDHEC-Risk conferences allow research results to be compared with the practices and needs of European institutional investment professionals.
More...
17/01/12
Risk and Asset Management Research
When EDHEC-Risk Institute was set up, on August 1, 2001, a deliberate decision was made to include the word “Risk” in the institute’s name, because of the importance of risk in the asset management industry. In the ten years since then, the support of our business partners has allowed EDHEC-Risk to become experts in the area of risk in asset management. Those ten years have also seen us extend our influence in Europe, with our London-based research centre, and also in Asia, where we have established EDHEC Risk Institute—Asia with the support of the Monetary Authority of Singapore (MAS). More...
19/12/11
Institutional Investment
A heightened awareness of the shortcomings of cap-weighted indices has led to the development of numerous alternative index methodologies. While the early non-cap-weighted indices use company characteristics to weight stocks, several forms of optimally diversified indices have received increasing attention recently, notably Minimum Variance Indices and Efficient Indices. In an attempt to avoid confusion about different benchmark construction methods, and in particular about the supposed complexity and dangers of so-called “quantitative” approaches, it may be useful to briefly review the basic principles behind different alternative index construction approaches.
More...
15/11/11
Indices and Benchmarking
In a new survey which elicited responses from 104 European institutional investment professionals, EDHEC-Risk Institute analysed the current uses of and opinions on equity and fixed-income indices. The most prominent result of the survey is that in spite of their shortcomings and the development of alternative indices, cap-weighted and debt-weighted indices remain the reference for European institutional investors and asset managers. In the equity field, although the results of our survey suggest that there may be room to design more “objective-oriented” as opposed to generic indices, it seems clear that alternative forms of indices are not likely to replace generic cap-weighted indices.
More...
26/10/11
Academic Research
Theory and - perhaps more importantly - financial common sense suggest that there should be a trade-off between a stock’s riskiness and its expected returns. On the one hand, standard asset pricing models suggest that systematic risk should be positively rewarded, i.e. stocks with higher betas should earn a higher expected return (see Ross’s Arbitrage Pricing Theory, 1976). Subsequently, research has underlined the explanatory power of stock-specific or so-called idiosyncratic risk for expected returns (Merton, 1987). Taken together, these results suggest that total volatility, which is the model-free sum of systematic volatility explained by a factor model, and idiosyncratic volatility, should also be positively rewarded (Martellini, 2008). More...
20/09/11
Regulation
In an open letter dated July 12, 2011 addressed to the European Internal Market and Services Commissioner, Michel Barnier, EDHEC-Risk Institute has warned of the inadvisability of imposing a “Tobin tax” on financial transactions in order to fund the future European budget. On the basis of a position paper by Raman Uppal, Professor of Finance at EDHEC Business School, EDHEC-Risk Institute’s recommendations are structured around the theoretical evidence on transaction taxes, the empirical evidence on transaction taxes, and implementation challenges. The findings of theoretical models are mixed about the effectiveness of the Tobin tax to reduce volatility and improve welfare.
More...
15/07/11
Regulation
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. More...
29/06/11
Risk Management
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. Risk management is often mistaken for risk measurement. This is a problem since the capacity to properly measure risk is at best a necessary but insufficient condition to ensure proper risk management. Another misconception is that risk management is about risk reduction. In fact, it is at least as much about return enhancement as it is about risk reduction More...
31/05/11
Indices and Benchmarking
While EDHEC-Risk Institute makes important public contributions to the advancement of academic financial research and its application towards the improvement of industry practices, it provides few insights into alpha generation. The Institute’s research suggests instead that academic methods of risk management and portfolio construction are a key source of value-added in investment management. The insights drawn from this research have led to a series of indices and benchmarks that provide more efficient and more academic solutions to investors’ needs than the currently available products on the market. More...
18/05/11
Executive Education
EDHEC-Risk Institute hosted an exclusive reception on April 6 at its newly-opened London premises to mark the launch of EDHEC Risk Institute–Europe.
EDHEC Risk Institute–Europe will serve as a platform for the continued generation and dissemination of academic insights into the key investment management issues of practical relevance to European investors and financial institutions. 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. More...
26/04/11
Executive Education
Enabling the efficient allocation of resources across time and space, the financial industry is the lifeblood of the global economy and at the forefront of the evolutions which are dramatically reshaping the world. Its fast-paced, cosmopolitan, and intellectually stimulating atmosphere attracts some of the best and most ambitious minds in science and business. Advancing the frontiers of knowledge and practices in such a competitive environment demands professionals who are able to combine well-honed critical thinking, extensive field expertise, and outstanding analytical and research skills to exert thought-leadership and introduce radical innovation. More...
23/03/11
Academic Research
Over the past seven years, EDHEC-Risk Alternative Investment Days (EAID) has become the alternative investment conference of reference for institutional investors, single managers and funds of funds. In 2011, the conference will take place on April 5-6 at the Tower Hotel in London, near Tower Bridge. The conference will open with the EDHEC-Risk International Herald Tribune CNBC Hedge Fund Roundtable of Global Thought Leaders. The goal of this annual roundtable is to allow for in-depth discussion of a key topic for the future of institutional investment. In 2011, the roundtable will discuss why institutional investors are returning to alternative investments and hedge funds.
More...
23/02/11
Academic Research
EDHEC-Risk Institute has made a major commitment to the Asia-Pacific region owing to its importance as a key growth area for the global investment industry. Local institutions' research and educational demands, coupled with the willingness of the Institute's European and global corporate sponsors and partners to extend existing cooperation to the region, buttressed this decision. Established in Singapore in September 2010, EDHEC-Risk Institute—Asia serves as a platform for generating academic insight into investment issues of global importance and of particular relevance to investors and institutions in the Asia-Pacific region.
More...
18/01/11
Risk Management
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 in fact mostly focused on security selection decisions as a single source of added value. This sole focus has somewhat distracted the industry from another key source of added value, namely risk management. Risk management is often mistaken for risk measurement. This is a problem since the capacity to properly measure risk is at best a necessary but insufficient condition to ensure proper risk management. More...
14/12/10
Risk Management
The global financial crisis has shifted the attention of all investors to risk. A survey of the practices of European pension funds conducted by EDHEC-Risk Institute highlights three great challenges—gaining additional access to performance through optimal diversification, improving the hedge of the stream of liabilities, and respecting the minimum funding ratio constraint by insuring downside risk away. The essence of diversification is captured by the proverb: “Do not put all your eggs in one basket”. In portfolio construction, the proverbial insights were given a scientific basis by Markowitz (1952). More...
17/11/10
Executive Education
Interest in the EDHEC-Risk Institute PhD in Finance continues to grow with some 5,000 people having expressed interest in the programme over the last twelve months. One hundred and thirty-eight applications have been processed to date, with thirty-four applicants admitted; twenty-eight on the executive track and six on the residential track. Twenty-six of these confirmed that they would be joining the programme in 2010/2011, with fifteen opting for the Europe-based programme and eleven for the Singapore-based course. The graduate admission scores of these programme newcomers are slightly higher than those of the previous entering class with their median GMAT score being 710, and their median GRE scores 670 (verbal) and 790 (quantitative).
More...
26/10/10
Investment Management
It is frequently observed that in time of financial crises correlations increase, thereby reducing the ability to diversify investments. In a recent Editorial comment that appeared in the summer 2010 issue (Vol. 36, No. 4) of the Journal of Portfolio Management, Fabozzi and Focardi argue that this observation is myopic and misses two fundamental points related to the behavior of financial returns. First, empirical evidence suggests that the returns of financial assets (measured as the logarithm of returns) are not normally distributed but exhibit heavy tails. Second, market indexes do not follow random walks. Co-movements between sequences of identical and independent normally distributed log-returns can be described by correlation. More...
23/09/10
Regulation
In an open letter to European Commissioner Michel Barnier on September 6, 2010, EDHEC Risk Institute has supported the idea of better regulation of the derivatives markets for commodities requested by France in a recent report sent to the commissioner by the French Ministers of the Economy, Energy and Agriculture, and which serves as a basis for the French position ahead of its future presidency of the G20, but we criticise the motivations behind the French request, which cannot in our view be a starting point for a credible European initiative. More...
07/09/10
Private Wealth Management
While the private banking industry is in general relatively well equipped on the tax planning side, with tools that can allow private bankers to analyse the situation of high net worth individuals operating offshore or in multiple tax jurisdictions, the software packages used on the financial simulation side often suffer from significant limitations and cannot satisfy the needs of a sophisticated clientele. In fact, most financial software packages used by private bankers to generate asset allocation recommendations rely on single-period mean-variance asset portfolio optimisation, a tactic that, for at least two reasons, cannot lead to proper strategic allocation. More...
20/07/10
Asset Management Research
EDHEC-Risk Institute is striving to become an academic institution of reference for the investment industry by maintaining a strategic focus on issues that correspond to major industry needs, validating research projects and output from both academic and professional viewpoints, and highlighting research results and applications towards asset owners, asset managers, and regulators. As we have had occasion to remark in the past, the raison d’être of the investment industry is not to generate alpha (asset management) or to design complex structured products (investment banking), but to serve private, retail and institutional investors’ needs by helping them find solutions to their problems. More...
10/06/10
Risk and Asset Management Research
Now regarded as the leading centre in Europe for financial research, EDHEC-Risk Institute is expanding: it is establishing two international outposts from which to do research, organise industry outreach activities, and deliver executive education programmes. The London-based EDHEC Risk Institute–Europe will strengthen the institute’s position in Europe’s financial capital, and development in the rest of the world will be focused on the Asia-Pacific region, owing to its importance as a key growth area for the global investment industry, and to its strong needs and demand for research and education. In view of Singapore’s status as a financial and educational hub and of the support the local authorities have given the school’s finance programmes... More...
19/05/10
Investment Management
EDHEC-Risk Institute believes that client servicing and the provision of investor solutions should respect a number of guiding principles: financial engineering should address client needs rather than showcase technical sophistication; the role of financial models should be to ensure that clients' genuine risk preferences are respected; and investors' objectives and liabilities should command equal respect whatever the clientele - institutional, private, or retail. Some have wondered for example whether the failure of standard portfolio diversification techniques in recent years could be explained by their inability to account for extreme market moves. It is clear that simple mean-variance portfolio selection techniques drawn from modern portfolio theory are ill-adapted when asset returns show severe departure from the normality assumptions of the theory. More...
23/04/10
Regulation
The plan to prohibit so-called naked sales of sovereign credit default swaps (CDS) runs up against legal and practical obstacles that make it inapplicable or even counterproductive. First, it will be impossible for intermediaries and ultimately for regulators to verify investors’ holdings of the securities representative of the risk the credit default swaps are assumed to cover. Next, a strict obligation to use credit default swaps to hedge the risk of sovereign debt would prevent sovereign nations from issuing long-term debt, as the CDS market for hedges of more than ten years is relatively illiquid. Another effect of this prohibition would be to make it harder for countries to manage the interest rate risk on their debt actively, as their counterparties would then no longer be able to hedge the country risk of the interest rate swaps they may have entered into. More...
16/03/10
Indices and Benchmarking
EDHEC-Risk Institute has been running a major research programme on Indices & Benchmarking since the institute was founded in 2001. This programme involves two aspects of research into indices and benchmarks in traditional and alternative investment. The first aspect looks at the quality of indices, the criteria institutions use to select them, and revisits modern portfolio theory to develop new approaches to building efficient indices. The second aspect of this research programme examines the use of index products
in the core-satellite approach to investment management, and includes the "Core-Satellite and ETF Investment" research chair sponsored by Amundi. More...
23/02/10
Risk Management
Investment management, as an industry, is justified by its ability to add value by designing solutions that meet investor needs. For more than fifty years, the industry has focused on security selection as its greatest single source of added value. This narrow focus has kept key sources of added value— risk management and asset allocation—largely out of view. In the wake of recent crises, and given the intrinsic difficulty of delivering value through security selection, the relevance of the old paradigm has been seriously called into question. The separation of alpha and beta that has been made explicit by the core-satellite portfolio management approach has effectively put the emphasis back on risk and asset allocation decisions.
More...
20/01/10
Institutional Investment
One of the main challenges for institutional investors, especially in times of turmoil such as we have witnessed over the past two years, is to be able to make long-term decisions that are based on the most relevant facts and figures. At Investment & Pensions Europe, we realised at an early stage that the research being done by the EDHEC-Risk Institute was precisely the kind of independent and pertinent work that could be applied directly to the practical questions that institutional investors face on a daily basis. It was this recognition of the relevance of the institute’s research that encouraged us initially to approach EDHEC-Risk with the idea of establishing a partnership on the IPE EDHEC-Risk Institutional Asset Management Awards (IAMAs). More...
15/12/09
Asset Management Education
Historically, the investment management industry
has focused its value proposal on asset selection and
underutilised two key sources of added-value: asset
allocation and risk management. Sophisticated asset
allocation and consideration of liability constraints
have heretofore largely remained limited to the
confines of institutional investors with maturity
transformation or retirement provision activities.
Over the last twenty years, the realisation of the
difficulty in delivering added-value through asset
selection has led to the brisk development of passive
investment vehicles, to the emergence of the core-satellite
management framework, and to renewed
interest in asset allocation approaches as sources of
performance. More...
19/11/09
Executive Education
In the four years since the EDHEC-Risk Asset Management Days were first held in Geneva in 2005, the event, which has subsequently been renamed the EDHEC-Risk Institutional Days to reflect its mission of bringing research insights to institutional investors, has become the leading institutional asset management event in Europe. In 2010, the EDHEC-Risk Institutional Days will be taking place in Monaco on the 8th and 9th of December at the Grimaldi Forum. By transferring the event from Paris to Monaco, EDHEC-Risk wants to offer an exclusive international platform, not linked to any domestic market, and to enhance the pan-European character of the event. Another major development for the next edition of the event will be a partnership between EDHEC-Risk and the leading European institutional investment publication Investment & Pensions Europe (IPE). More...
19/10/09
Institutional Investment
In its 2008 discussion paper, the IASB proposed a change in the classification of pension liabilities. Since then, the IASB has made clear that this proposal will be dropped. Our opinion of this initial proposal is that clearer classification is indeed necessary, but that the proposed changes to the classification and measurement of post-retirement benefits do not allow clear classification of plans by type of sponsor commitment. A clearer classification needs to determine whether the sponsor guarantees financial risk alone or in combination with longevity risk and whether risk is shared by participants (employees) and sponsors (employers). The IASB is also proposing to change the presentation of the balance sheet, comprehensive income, and the profit and loss account. More...
21/09/09
Regulation
From the point of view of asset management regulation, the reactions of European leaders, in particular those of the heads of state of France and Germany in the summer of 2007, failed to take the measure of the crisis. By blaming first hedge funds and then short sales for destabilising the markets, political leaders and market supervisors prevented earlier awareness of the gravity of the crisis and of the failure of the regulatory system. Hedge funds are clearly not the main cause of the major crisis we have experienced. IMF statistics show that they accounted for only 10-15% of losses on loans, securitisations, and structured products linked to American residential mortgages. More...
24/06/09
Asset Management
One of the key concerns of both the Journal of Portfolio Management and EDHEC-Risk is to ensure that the academic research we publish is relevant for institutional investors. It is for this reason that we decided to set up a new partnership this year with Robeco to honour the research paper published in the Journal of Portfolio Management in the 2008 calendar year which was deemed to be of most interest or usefulness to European institutional investors. The principle behind the selection was to choose the paper that best combined academic excellence and industry relevance for institutional investors. The inaugural winner of the EDHEC Robeco Journal of Portfolio Management Award is "Alternatives and Liquidity: Will Spending and Capital Calls Eat Your "Modern" Portfolio?" by Laurence B. Siegel. More...
13/05/09
Private Wealth Management
Over the past decade, private wealth management has become a profitable business for banks and asset
managers around the globe. According to the private banking and wealth management survey by
Euromoney (2008), global private banking assets rose to USD 7.6 trillion in 2008 from USD 3.3 trillion in
the year before. This increase is currently driving a larger wealth management market creating greater
opportunities for wealth advisors to leverage new technology to acquire new clients and grow profits. As a
result, competition among wealth advisory firms is increasing for finding ways to improve existing client
relationships and provide new tools to improve the advisor effectiveness. Current private banking tools are typically tax and estate planning geared towards one specific country and financial simulation software, More...
31/03/09
Sovereign Wealth Funds
It is now widely recognized that sovereign funds represent a dominant force on international financial markets. By some estimates, the total size of sovereign wealth funds currently stands at more than $3 trillion, which is more than twice the estimated size of the world's hedge fund industry (around $1.5 trillion of assets under management) but only a seventh of the global investment-fund industry (around $21 trillion of assets under management). The growth of sovereign wealth funds is in fact likely to continue, and is expected to reach around $5 in the next five years and $10 within the next decade. This rapid growth of sovereign wealth funds and its implications pose a series of challenges for the international financial markets, and also for sovereign states. More...
24/02/09
Best Execution and Operational Performance
From retail to more professional investors and practitioners, all are concerned with transaction costs, as it is an established fact that lower transaction costs automatically enable higher returns. To provide their clients with competitive portfolio returns, investment firms need to be proactive and put in place the appropriate means of effective transaction cost management. However, when implementing their client decisions, investment managers often cope with issues regarding how transaction costs can be properly identified, measured,
forecasted as well as how the quality of execution should be evaluated. Most of the time, these fundamental questions remain open because relatively little information is directly available. More...
10/02/09
Asset Management
In 2008, EDHEC merged two of its largest conferences into a single event. The
EDHEC Asset Management Days, which had been taking place in Geneva, were
made part of the 2008 edition of the EDHEC Institutional Days (EID). This merger made it possible to capitalise on the success of both events and attract more than 1,200 visitors, making the Paris EID the leading institutional asset management event in Europe. In 2009, EDHEC Institutional Days will build on the success of the previous edition by offering a programme of great added value. The event will be built around three conferences: the ETF Summit, the Global Institutional Investment Conference, and the Annual Conference on French Institutional Asset Management. More...
20/01/09
Asset Management
The current turmoil is prompting calls to curtail financial innovation, abandon financial engineering, and pull the plug on quantitative risk management. Risk management models are being criticised for failing to keep pace with market developments and for creating a false sense of security that led to excessive risk-taking. Practitioners are being urged to give up rocket science and “look at the world with the naked eye.” Blaming mathematics and financial modelling largely misses the point – the source of the current crisis is to be found in lax monetary policy, excessive leverage, and a failure of regulation. While risk management models should be criticised and improved, it should also be noted that quantitative risk managers are hardly ever the decision makers in financial institutions More...
17/12/08
Commodities
In US dollar terms, crude oil prices increased 525% from the end of 2001 through July 31st, 2008. Was this rally yet another speculative bubble? Specifically, was the oil-price rally based on speculative excess rather than fundamental supply-and-demand factors? In a new position paper, “The Oil Markets: Let the Data Speak for Itself”, we argue that when the oil supply-and-demand balance becomes sufficiently tight and that when effective OPEC spare capacity becomes sufficiently low that it is logical to see very high prices to ration demand and/or encourage additional supply. That is the job and message of price, even if this message is unpopular. More...
07/11/08
Asset Management Research
As a new academic year begins, the international advisory board of the EDHEC Risk and Asset Management Centre’s International Advisory Board has been able to take stock of the centre’s work in the recent past and observe its plans for the future. The EDHEC research centre has proven to be very valuable in assisting professional investors in underpinning decisions with academic research, because it provides state-of-the-art analysis of current topics. In return, our role is to help to create a meeting point between the worlds of investing and science so that the advisory board can contribute to the relevance of the centre’s activities. Understanding and managing innovation and risk in investment management will be a major issue over the coming years More...
20/10/08
Alternative Investments
In contrast to mutual funds, hedge funds employ dynamic investment strategies and enjoy a high degree of freedom with regard to the instruments that they can hold in their portfolio. To that can be added the possibility of engaging in short selling of securities and using leverage. Consequently, alternative strategies are infinitely more complex than those of traditional funds. The sophisticated investment strategies of hedge funds have considerable consequences for their return structure. In essence, hedge fund returns differ from those of mutual funds in three respects. First, hedge funds returns are – as opposed to mutual fund returns – not normally distributed. Second, they are non-linear with respect to the standard market factors, such as those of equity and bond markets. More...
03/09/08
Governance
Recent “market timing” and “late trading” scandals in the mutual fund industry have fuelled debate about the appropriateness and effectiveness of mutual fund (MF) regulation. Academics, policymakers, and practitioners have looked into the degrees of investor protection afforded by existing regulatory frameworks. The need for stricter regulation is discussed in light of the unwillingness to abandon an approach relying primarily on oversight by industry participants themselves. Relatively little academic work has been done on MF regulation. Some theoretical and empirical articles have looked into MF institutions, but most deal primarily with funds in the US and, at best, a handful of other countries. The academic literature on the MF industry revolves around three main themes. More...
22/07/08
Alternative Investments
Commodities prices have reached record historical levels in 2008. From a low at 164 in January 2002, the Goldman Sachs Commodity Index has reached a peak at 767 index points in May 2008. This spectacular growth results from a conjunction of worldwide events. It reflects an increased demand from fast industrializing countries such as China and India, stretched supplies from producing countries and tense geopolitical situation in the oil market. It is also the consequence of the increased interest of both speculators and indexers for commodities. If we look at the observed rally in commodity prices from a purely financial perspective, one can trace it down to six commonly accepted benefits of commodity investing. More...
19/06/08
Asset Allocation and Risk Management
One of the most significant advances in asset pricing theory over the last few decades has perhaps been to emphasise the intimate relationship that exists between optimal allocation issues and derivatives pricing problems. These recent advances in academic research have paved the way for the development
of a new generation of welfare-improving financial engineering techniques aimed at designing optimal investment solutions that truly take into account the specific constraints and objectives of the various types of investors. Following and paralleling these developments in research, a profound paradigm shift is currently affecting the whole financial industry, with asset allocation and risk management being increasingly recognised as the key ingredients on which to focus in order to design improved investment solutions. More...
22/05/08
Executive Education
Exerting thought-leadership and introducing radical innovation in the financial industry demands professionals who combine field expertise, critical thinking, and outstanding research skills. Since undergraduate degrees, professional experience and the MBA may develop this set of competencies only partially, those who aspire to higher intellectual levels should consider pursuing the foremost academic and professional qualification, the Doctorate of Philosophy (PhD). The newly introduced EDHEC PhD in Finance is designed for professionals whose aim is to gain and maintain an in-depth understanding of finance as well as the ability to initiate and carry through research projects that will yield original insights and lead to innovative approaches and offerings. More...
22/04/08
Alternative Investments
In November 2007 the EDHEC Alternative Investment Days became the largest alternative investment conference in Europe for institutional investors, with one thousand registered delegates. By transferring the 2008 edition of the event to the ExCeL Conference Centre in London, EDHEC wishes to make this event the alternative investment conference of reference not only for institutional investors and funds of funds, but also for single hedge fund managers. The desire to associate single managers with the 2008 edition of the event can be seen through several important initiatives, notably the Capital Introduction Forum, the EDHEC Advanced Econometrics Seminar and the EDHEC Alternative Beta Seminar. More...
18/03/08
Alternative Investments
Most of modern asset pricing theory and portfolio selection analysis is based on so-called “fund separation theorems”, which in a nutshell advocate separate management of performance and risk control objectives. In the context of asset allocation decisions with liability constraints, it can be shown that the suitable expression of the fund separation theorem provides rational support for “liability-driven investment” (LDI) techniques that have recently been promoted by a number of investment banks and asset management firms. These solutions involve on the one hand the design of a customised liability-matching portfolio, the sole purpose of which is to hedge away as effectively as possible the impact of unexpected changes in risk factors affecting liability values (most notably interest rate and inflation risks), and on the other hand More...
14/02/08
Asset Management
In 2008, EDHEC will be merging two of its most important conferences into a single event. The EDHEC Asset Management Days, which had been taking place in Geneva up until now, have been integrated into a new edition of the EDHEC Institutional Days, which will now be held every year in Paris in June. This new joint event will capitalise on the previous success of both events, with the most recent editions having attracted in total more than 1,500 institutional investors, asset managers and private bankers. By merging the two events, EDHEC’s intention is to establish the most important European conference for institutional investment management in Paris. More...
21/01/08
Asset Management Research
EDHEC Business School believes that academic research has a vital role to play in promoting industrial innovation and constantly raising professional standards. With a century old tradition of serving the needs of the community, it has defined a ‘research for business’ orientation and has spelled out its educational credo as ‘professional development through research based excellence.’ EDHEC-Risk implements the school’s policy by conducting academic research on topics which are central for the future of the investment management industry, subjecting it to the highest academic standards, systematically highlighting its applications to practitioners, and assisting professionals in its implementation. More...
17/12/07
Asset Management Research
The 2007-2008 academic year is an important one for our research centre. Following the annual meeting of the international advisory board which took place on September 21, it was decided that the EDHEC Risk and Asset Management Research Centre would increase its efforts in a certain number of key areas for the asset management industry.
Our research teams will be mobilised for all six of the research programmes that we have set up over the last three years: Indexes and Benchmarking, ALM and Asset Management, Asset Allocation and Derivatives, Asset Allocation and Alternative Diversification, Performance and Style Analysis, and Best Execution and Operational Performance. More...
19/11/07
Institutional Investment
In the face of the need for a better understanding of optimal asset allocation decisions in the presence of liability constraints, from both the standpoint of the sponsor company and the standpoint of the pensioners, EDHEC has recently signed an ambitious partnership with BNP Paribas Asset Management dedicated to the production of advanced academic research on the topics of asset-liability management and institutional investment management.
This partnership will take the form of a dedicated research chair supported by BNP Paribas Asset Management, with an objective of producing three main academic contributions to the debate within the next three years, and follows a collaboration between EDHEC and BNP Paribas Asset Management last year More...
17/10/07
Alternative Investments
European leaders, eager for an explanation absolving them of responsibility, have once again laid blame on the seemingly detrimental role played by hedge funds in this summer’s crisis. This crisis is the result of a sudden fall in asset
prices, combined with increased aversion to risk on the part of investors. To suggest that hedge funds are to blame for this crisis is simplistic but tempting, as their speculative, unregulated, and opaque nature make them easy targets - all the while, more delicate market and regulatory issues are avoided. So, as a counterpoint to these accusations that often come from France, it seemed necessary to us to provide a French perspective on the lessons to be learned with respect to financial regulation in France. More...
17/09/07
Asset Management
Modern portfolio theory, created some fifty years ago and set in an unconditional mean-variance framework, has been mainly put into practice in the last fifteen years or so. The low cost of acquiring and processing financial market data is certainly the main contributing factor. Moreover, thanks to the decline in the cost of computing, large-scale optimization is now feasible. However, when the number of assets included in the portfolio is large, simply computing the sample analogues of the moments produces large estimation errors and more advanced statistical techniques are required. Also, since variances and covariances are time-varying, conditional models are needed to estimate the optimal allocation. More...
19/07/07
Alternative Investments
Since 2004, the EDHEC Risk and Asset Management Research Centre has been organising academic conferences for the benefit of industry professionals as part of EDHEC Business School’s “Research for Business” policy. More than 800 practitioners from 30 countries gathered for the last EDHEC Hedge Fund Days, making it the largest alternative investment conference in the UK. In order to further improve the design of this event and to accommodate the growing interest of institutional investors in the various alternative investment instruments and techniques, the 2007 edition will not only cover the latest developments in the hedge fund industry, but also feature new research on commodities, real estate, private equity and on the application of absolute return techniques in traditional investment management.
More...
19/06/07
Alternative Investments
Commodities prices have reached record historical levels in 2006. The United Nations reported in April 2007 that their own commodity price index, the UNCTAD index, “increased by more than 30% between 2005 and 2006 and by 80% from 2000 to 2006”. This growth results from a conjunction of worldwide events. It reflects an increased demand from fast industrializing countries such as China and India, stretched supplies from producing countries and tense geopolitical situation in the oil market. It is also the consequence of a sharp increase in speculation among institutional investors. If we look at the observed rally in commodity prices from a purely financial perspective, one can trace it down to six commonly accepted benefits of commodity investing. More...
16/05/07
Performance Measurement
As an absolute arithmetic magnitude that does not depend on any category, alpha levels are easily comparable. This quality has enabled us to create the first European rankings for asset management companies based on the intensity of alpha: the Alpha League Table. Following our initial series, which focused on France, Italy, Spain, Switzerland and the UK, we are now launching the 2007 season with a presentation of asset management in France. The Alpha League Table, which is based on the capacity of asset management companies to generate outperformance on their equity funds, was welcomed by financial professionals across Europe. The emphasis on alpha is important for the asset management industry. More...
16/04/07
Asset-Liability Management
Market difficulties at the turn of the millennium have drawn attention to the risk management practices of institutional investors in general and defined benefit pension plans in particular. A perfect storm of adverse market conditions around the turn of the millennium devastated many corporate defined benefit pension plans. Negative equity market returns eroded plan assets at the same time as declining interest rates increased market-to-market value of benefit obligations and contributions. In extreme cases, this left corporate pension plans with funding gaps as large as or larger than the market capitalization of the plan sponsor. More...
18/03/07
Alternative Investments
Real estate assets are traditionally regarded — and marketed — as real and therefore solid investments that offer attractive risk-adjusted returns, significant portfolio diversification benefits, a high and stable income component and long-term inflation protection. Our objective is to revisit these ideas and recast them in a modern investment context. One central theme will be the refining of traditional allocation approaches to consider real estate within a state-of-the-art Asset Liability Management framework. Another key area of interest for us will be to establish the place of real estate in multi-style multi-class portfolios, design integration methods that optimise the risk/return potential of real estate, and propose innovative asset management approaches More...
16/02/07
Exchange-Traded Funds
The EDHEC European ETF Survey 2006 is part of the EDHEC Risk and Asset Management Research Centre’s Indices and Benchmarking research programme headed by Felix Goltz and Lionel Martellini. This programme has given rise to extensive research on the subject of indices and benchmarks in both the hedge fund universe and more traditional investment classes. In 2006, EDHEC published an important study which involved assessing the quality of major stock market indices. In view of the growth and development of ETFs in Europe, and the fact that they are becoming a favoured investment
support for both index management and the construction of benchmarks, we also felt that it was both timely and apposite to carry out the EDHEC European ETF Survey.
More...
18/01/07
Institutional Investment
A new EDHEC study entitled "The Impact of IFRS and Solvency II on Asset-Liability Management and Asset Management in Insurance Companies" reveals the contradictions inherent in the current Solvency II and IFRS provisions for insurance companies. This study was co-produced by the EDHEC Financial Analysis and Accounting Research Centre and the EDHEC Risk and Asset Management Research Centre, with the aim of combining the research centres’ expertise in complementary areas in order to address this complex subject, which involves several disciplines. The EDHEC Financial Analysis and Accounting Research Centre deals with financial analysis issues More...
14/12/06
Performance Measurement
EuroPerformance and EDHEC have set up the first European rankings of asset management companies based on the intensity of alpha: the Alpha League Table. Finance professionals have shown considerable interest in this new alpha-based performance measure, developed using the EuroPerformance-EDHEC Style Ratings. Cutting-edge techniques provide a true measure of risk-adjusted performance (alpha), while taking into account extreme risk and persistence of outperformance. As an absolute arithmetic magnitude that does not depend on any category, alpha levels are easily comparable. The Alpha League Table provides a comparison of asset management companies based on their ability to provide positive alpha, More...
10/11/06
Indices
Af2i and EDHEC are pleased to present the first study to have been carried out on the quality of market indices as a benchmark for institutional investors. We feel that this study is particularly valuable given the changes that have taken place in recent years in asset management practices. For the vast majority of institutional investors, the construction of and adherence to a benchmark is central to their investment approach. And, very often, the choice of benchmark is a market index and/or a combination of market indices. Since their design is not affected by the securities chosen by managers and since they benefit from the sound reputation of major financial institutions, credit rating agencies and major international stock exchanges, market indices More...
17/10/06
Asset Management
Recent difficulties have drawn attention to the risk management practices of institutional investors in general and defined benefit pension plans in particular. What has been labeled “a perfect storm” of adverse market conditions at the turn of the millennium has devastated many corporate defined benefit pension plans. Negative equity market returns have eroded plan assets at the same time as declining interest rates have increased market-to-market value of benefit obligations. That institutional investors in general and pension funds in particular have been so dramatically affected by recent market downturns, with resulting pension deficits posing a formidable threat to the financial health of sponsor companies, has questioned the consistency of risk management practices with respect to the prescriptions of modern portfolio theory. More...
01/09/06
Alternative Investments
An article in the June 2006 edition of the European Central Bank’s Financial Stability Review (FSR) claims that hedge fund activities pose considerable risk to the financial system. We disagree with this conclusion, which is based on mere speculation. We outline the fallacies in the reasoning of the FSR article and makes some propositions on how to assess the welfare impacts of hedge funds. In particular, we argue that it would be worthwhile for financial regulators to work towards obtaining data on hedge fund leverage and counterparty credit risk. Such data would allow a reliable assessment of the question of systemic risk. In addition, we argue that besides evaluating potential systemic risk, it should be recognised that hedge funds play an important role as “providers of liquidity and diversification.” More...
27/07/06
Alternative Investments
Hedge fund strategies have long been considered to be so-called “absolute return” strategies. As a result, they were confined to the “satellite” part of investors’ portfolios and were intended to improve the performance of the “core” portfolio. However, with the bursting of the Internet bubble, investors again experienced the ineffectiveness of traditional diversification strategies. They therefore took a new look at hedge funds and became interested in their diversification properties. Alternative strategies thereby progressively found their place in the “core” portfolio of investors, with the objective of reducing normal risks (i.e. volatility) and extreme risks (i.e. Value-at-Risk). However, while alternative strategies present attractive characteristics, they are not, for all that, a panacea. Some strategies have exposures to market, volatility or credit risk which are relatively close to those of traditional asset classes. More...
16/06/06
Performance Measurement
EuroPerformance and EDHEC have set up the first European rankings of asset management companies based on the intensity of alpha: the Alpha League Table. Finance professionals have welcomed this new measure of risk-adjusted performance with interest.
As an absolute arithmetic magnitude that does not depend on any category, alpha is easily comparable. The highest-ranked firms in the Alpha League Table are the best providers of alpha, i.e. the asset management firms that provide a good compromise between the value of the alphas produced and their frequency. The rankings are drawn up on the basis of the EuroPerformance-EDHEC Style Rating. By relying on the state of the art in financial research, these ratings provide a true measure of performance adjusted for the risks that were actually taken (alpha). More...
16/05/06
Performance Measurement
With the development of independent distribution and so-called "open" architecture, the marketing success of mutual funds no longer only depends on the ability of their sales network to sell, but also on their financial performance.
This "financialisation" of commercial competition has resulted in increased attention being given to the performance measurement of investment funds. The French market, for instance, has not escaped the growing influence of ratings and fund classifications by specialist newspapers.
At first glance, this spotlight on performance could be virtuous and allow better informed investors to use the power they have when deciding to subscribe or not to eliminate the worst funds and favour the best. More...
14/04/06
Performance Measurement
EuroPerformance and EDHEC have set up the first European rankings of asset management companies based on the intensity of alpha: the Alpha League Table. Finance professionals have welcomed this new alpha-based performance measure with interest. As an absolute arithmetic magnitude that does not depend on any category, alpha is easily comparable. The Alpha League Table compares asset management firms’ ability to deliver positive alphas. The highest-ranked firms in the Alpha League Table are the best providers of alpha, i.e. the asset management firms that provide a good compromise between the value of the alphas produced and their frequency. The rankings are drawn up on the basis of the EuroPerformance-EDHEC Style Rating.
More...
16/03/06
Alternative Investments
Since it was set up, in 2001, the Edhec Risk and Asset Management Research Centre has made a point of conducting research that is both independent and pragmatic. The concern to render our research work relevant and operational led us, in 2003, to publish the first studies on the policies of the European asset management industry. The Edhec European Asset Management Practices
survey allowed a comparison to be established between the academic state-of-the-art in the area of portfolio management and risks, and the practices of European managers. This study was completed in the same year by a review of the state-of-the-art and the practices of European alternative multimanagers, the Edhec European Alternative Multimanagement Practices survey. More...
20/02/06
Alternative Investments
With currently around one thousand billion dollars in assets under management, hedge funds have seen impressive growth over the past decade and providers of such investment vehicles do not lack arguments as to why institutional investors should try to gain exposure to hedge funds. The interest from institutional investors comes at a time when they are trying to find recovery solutions after having been dramatically affected by downturns in the equity markets. This is especially true for institutions where declining interest rates have increased liabilities at the same time as assets were reduced. These market events, in addition to questioning the current investment practices of institutional investors in general, and pension funds in particular, have put the emphasis on alternatives to stocks and bonds, such as hedge funds. More...
17/01/06
Alternative Investments
There seem to be two main reasons behind the success of hedge funds in institutional money management. On the one hand, it is argued that hedge funds may provide abnormal risk-adjusted returns, due to the superior skills of hedge fund managers and flexibility in trading strategies. These benefits have been labeled return enhancement or portable alpha benefits, and have been the focus of rich academic literature on the presence (or absence) of skills in hedge fund management (see for example Amenc et al. (2003), as well as references therein). A careful quantitative and qualitative due diligence process is needed to ensure that the selection process will increase the likelihood of including high risk-adjusted performance funds in a portfolio. More...
19/12/05
Performance
In 2002, when Edhec and EuroPerformance decided to set up a new fund rating system, we felt that it would be useful to analyse the weak points of the existing rating systems in order to solve those weaknesses and provide a better quantitative evaluation of the quality of investment management in Europe. This study, which was carried out and published by Edhec, shows that none of the existing rating systems is capable of measuring the alpha of the funds rated. This observation, as surprising as it may seem in view of the popularity of the Greek letter in both the academic literature and the industry, is not inexplicable. The calculation of alpha, i.e. the outperformance obtained by the manager compared to the “normal” returns procured by exposure to market risks and styles, presupposes that the exposures to these risks (the betas) are determined accurately. More...
17/11/05
Indices and Benchmarks
The difficult stock market situation in recent years has often led investors, small asset management firms specialised in stock picking and journalists to criticise benchmarked investment management. The latter is allegedly responsible for the poor performance of managers or, at least, for their inability to beat the indices that they use as a reference for their investment management. In order to take the sting out of the debate and enlighten investors, Edhec has undertaken conceptually clarifying work that was presented to French professionals a few months ago. Three major ideas have come out of this work: firstly, a benchmark is not necessarily an index ; secondly, an index is not usually a good benchmark ; finally, it is difficult, or even dangerous, not to refer to a benchmark. A lack of benchmark would mean that the manager has no strategy. More...
18/08/05
Asset Allocation
The question of whether a portfolio should be managed actively or passively is anything but new. Up until the 1990s, the consensus in the academic community was largely in favour of passive management. At the heart of this position is the efficient market hypothesis, which states that prices immediately reflect all available information. As a result, an investor cannot gain from buying mispriced securities, since new information is included in prices quickly enough. In practice, however, active management has predominated traditionally. This is largely due to the culture of buy-side and sell-side "equity research". As evidenced by the number of newspaper articles and academic publications on this topic, the active-passive debate, while old, is still very much alive. More...
11/07/05
For several months, investors and their advisors have been worrying about the profitability prospects for hedge funds.
Modestly entitled the “capacity effect”, the analysis of the reasons behind the fairly disappointing performance in 2004 constitutes, if we believe those who are putting the argument forward, a serious calling into question of the alternative investment industry’s value proposition. Alphas would be tending to become rarer, for two main reasons: The significance of the sums drained into the alternative investment industry are making the implementation of “niche arbitrage” strategies more and more difficult (for example, convertible bonds or arbitrage on small stocks); more globally, the increase in operational volumes is reducing market inefficiency and market anomalies, which are allegedly the main source of performance for hedge funds. More...
17/06/05
Alternative Investments
After decades of reluctance, institutional investors are progressively succumbing to the siren’s song and finally taking on exposure to hedge fund strategies through funds of hedge funds. However, there is still one major barrier to overcome before funds of hedge funds can definitively be accepted by the bulk of traditional investors. Fund managers and investors have to agree on the definition of relevant information, i.e. the information that fund managers should necessarily disclose to investors on a regular basis.
This raises two questions. On the one hand, what is the minimum level of information that investors need so that they can monitor their investments properly? On the other hand, can fund managers provide investors with a sufficient level of information without putting themselves in danger? More...
08/03/05
Institutional Investment
Pension investment schemes are facing serious problems of underfunding today. While accounting issues and political reform of social security pensions are most prominent in public debate, improving the investment practices of pension plans should be able to provide a solution. Part of it may lie in the appropriate use of derivatives instruments, a number of recent studies suggest. Corporate pension funds and public retirement systems all over the world are faced with funding problems. For example, in 2003, the companies in S&P 500 and FTSE 100 faced a cumulative deficit of $225 billion and £55 billion respectively (Credit Suisse First Boston (2003) and Standard Life Investments (2003)), while the worldwide deficit reached an estimated 1,500 to 2,000 billion USD (Watson Wyatt (2003)).
More...
02/02/05
Alternative Investments
There are two main challenges involved in the application of standard asset allocation methods (e.g. efficient frontier analysis) to the design of optimal portfolios that include hedge funds. One challenge is that it is extremely difficult to obtain a forward-looking estimate of a hedge fund’s expected return. Therefore, we will review advanced techniques consistent with the presence of significant parameter uncertainty in the asset allocation process. Another challenge comes from the fact that hedge fund returns are not in general normally distributed, which makes the use of any asset allocation model based on sole estimates of expected return and volatility somewhat problematic. In what follows, we provide a review of optimal asset allocation models that account for more than the first two moments of hedge fund return distributions. More...
30/11/04
All fund rankings rely on a risk-adjusted measure. It would be unfair to reward a manager whose apparently superior performance is simply due to taking greater risks than his peers. This area of risk-adjusted return has given rise to various indicators and methods. Among the best known is the Sharpe ratio, which compares a portfolio’s
excess return in relation to a risk-free asset to its total risk as measured by its standard deviation. As a robust indicator, which does not depend on any choice of benchmark, the Sharpe ratio is considered to be an absolute measure of the portfolio’s performance. However, this strength is probably also its main weakness.
More...
10/11/04
By their very nature, hedge funds allow the investor to be exposed to different risk factors such as volatility, counterparty, or liquidity risk, since this exposure is considered to be a source of superior returns for invested funds. As an example, it is well understood and widely accepted that market makers receive a premium (the spread) when acting as liquidity providers in a market. When hedge funds implement trading strategies that provide liquidity to a specific market (such as fixed income arbitrage, distressed securities or securities involved in an M&A process), part of the return that can be expected is a premium for the liquidity risk they carry when holding illiquid instruments that are potentially subject to large price swings. Exposure to these risk factors is not only a source of superior return but also the very essence of hedge funds’ extensive diversification possibilities compared with traditional investments.
More...
01/10/04
Alternative Investments
For as long as sophisticated investors such as high net worth individuals or foundations represented the bulk of hedge fund investors, alternative investment strategies were regarded as absolute return strategies and often characterized by a high level of opacity. However, with the arrival of institutional investors, investment practices in the alternative industry have undergone a profound rationalization process. Hedge funds must now abide by considerably stricter transparency requirements and their performance is almost systematically compared to a benchmark.
However, given the genuine risk profile of hedge funds, it is extremely challenging to use basic indicators to account for their specific characteristics (e.g. non normality of the returns, dynamic and non linear exposition to a great variety of factors, etc.). More...
03/09/04
Business Analysis
Since the end of the 90s, the asset management industry has seen a vast movement of mergers and acquisitions. One of the principal motivations highlighted by the acquirers is the importance of the effects of size on the profitability of management companies.
The most usual and simplest method for checking the impact of size on the profitability of management companies involves regressing the returns on equity (ROE) onto the amounts of assets under management (AUM). However, this approach is not robust. It assumes that the merged entities are only comparable using their size alone, while all the strategic studies show that other criteria influence the performance and operations of management companies. More...
19/07/04
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| FTSE EDHEC-Risk Efficient Indexes: December 2011
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| EDHEC-Risk Alternative Indexes: December 2011
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| EDHEC-Risk IEIF Commercial Property: December 2011
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