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.

One of the most significant developments in asset pricing theory is its recent emphasis on the close ties binding dynamic portfolio selection and contingent claim pricing. Such path-breaking advances in academic research have blurred the frontiers between investment management and investment banking and led to a new generation of financial engineering techniques that aim to design optimal investment offerings that truly take into account the investor’s specific constraints and objectives.

These new offerings draw simultaneously on the benefits of the three competing approaches to risk management—risk diversification, risk hedging, and risk insurance. While each of these techniques has received some attention on the part of asset managers and investors, a comprehensive framework for the design of advanced solutions incorporating the three dimensions simultaneously within a global coherent framework is still essentially missing.

Blending long-term strategic asset allocation decisions with risk control implied by the presence of short-term constraints, new dynamic asset allocation techniques offer manifold welfare-enhancing applications in asset-only and asset-liability management. It is against this backdrop that EDHEC-Risk has decided to structure all of its work around asset allocation and risk management and thereby to put the collective expertise of its permanent staff and research associates at the service of key needs of financial institutions and investors.

This strategic choice is applied to all of EDHEC-Risk’s research programmes, whether they involve

• putting forward new asset-allocation techniques that span traditional and alternative investments, such as in the “Advanced Modelling for Alternative Investments” research chair, in partnership with Newedge Prime Brokerage
• identifying biases in existing indices and designing superior instruments for benchmarked asset allocation, as we have done with the FTSE EDHEC-Risk Efficient Indices
• examining the use of index products in the core-satellite approach to investment management, as in the “Core-Satellite and ETF Investment” research chair in partnership with Amundi Investment Solutions
• analysing the pricing and hedging of non-linear payoffs in situations of limited liquidity, ,as we are doing within the “Structured Products and Derivatives Instruments” research chair, sponsored by the French Banking Federation
• improving asset management, asset-liability management and strategic allocation techniques, as in the “Regulation and Institutional Investment” research chair in partnership with AXA Investment Managers; the “Asset-Liability Management and Institutional Investment Management” research chair in partnership with BNP Paribas Investment Partners; the “Private ALM” research chair in partnership with ORTEC Finance; the “Dynamic Allocation Models and New Forms of Target-Date Funds” research chair in partnership with UFG; the “Asset-Liability Management Techniques for Sovereign Wealth Fund Management” research chair in partnership with Deutsche Bank; and the “The Case for Inflation-Linked Corporate Bonds: Issuers’ and Investors’ Perspectives“ research chair, in partnership with Rothschild & Cie.
• identifying the operational risks parties to the fund management industry bear as a result of their practices and of regulations, assessing the importance of these risks and their impact on the parties’ solvency and business models, and proposing means of mitigating these risks, as we are doing in the “Risk and Regulation in the European Fund Management Industry” research chair, in partnership with CACEIS

It is in these particularly exciting times of far-reaching transformation of the financial industry that EDHEC-Risk Institute has launched the Executive MSc in Risk and Investment Management programme to train professionals to embrace and lead the major changes that will reshape investment management. This postgraduate programme is designed to be completed in seventeen months of part-time study and is formatted to be compatible with professional schedules. The programme is offered in Asia—from Singapore—and in Europe—from London and Nice.

EDHEC-Risk’s risk management approach is also an integral part of its advanced executive education seminars.

The Alternative Asset Allocation Seminar is an intensive three-day course that will impart advanced concepts and practical tools for optimal construction and risk management of multi-style multi-class portfolios. It will also enable participants to derive the full benefits of alternative investments for asset management and asset-liability management (ALM) while controlling for their specific risks. Upcoming seminars are taking place in London and New York at the middle and the end of March.

The Advances in Asset Allocation seminar is a three-day course that provides participants with an in-depth appreciation of the concepts and techniques that will shape the future of investment management. The seminar will also equip them with practical tools to improve asset allocation and risk management processes, implement novel investment management approaches, and develop new products. The next editions of the seminar will be taking place in Singapore and New York in May and July respectively.