Indices and Benchmarking
This paper introduces a novel method for the construction of equity indices that,
unlike their cap-weighted counterparts, offer an efficient risk/return tradeoff. The index construction method goes back to the roots of modern portfolio theory and focuses on the tangency portfolio, the portfolio that weights index constituents so as to obtain the highest possible Sharpe ratio. More...
23/02/10
Risk Management
A new paper drawn from the “Core-Satellite and ETF Investment” research chair at EDHEC-Risk Institute, sponsored by Amundi, examines the ways dynamic
asset allocation techniques can be used to manage portfolios of exchange-traded funds (ETFs). First, dynamic allocation to stock and bond ETFs and traditional static diversification are compared. Second, tactical allocation to stock and bond ETFs and risk-controlled allocation—with both forms of allocation informed by the same return forecasts—are compared. The paper shows that dynamic asset allocation techniques that can be used with frequently traded and broadly diversified instruments such as ETFs make it possible better to address investor concerns over drawdown and intra-horizon risk, whether or not the manager wishes to make return predictions. More...
26/01/10
Alternative Investment
The final programme has been confirmed for the EDHEC-Risk Alternative Investment Days, which will be taking place at The Brewery in London on February 8 and 9 next. The support of a number of business partners is helping to make this event the flagship conference for alternative investment in Europe. The conference aims to present the applied research conducted by EDHEC-Risk Institute and to discuss the results with the institutional investor and fund manager communities. More...
17/12/09
Sovereign Wealth Funds
Bernhard Scherer The existence of oil stabilization funds as the largest category of sovereign wealth funds relies on oil prices as a main source of macroeconomic risk for oil exporting countries. Given the often contingent spending policies of oil stabilization funds (accumulating wealth when oil prices are rising and spending wealth to support the local economy when GDP is shrinking) it is important to understand the magnitude and relative importance of oil price shocks relative to other sources of macroeconomic risk. More...
27/10/09
Regulation
EDHEC surveyed pension funds, their
advisers, their regulators, their fiduciary
managers, and their asset managers for their
reactions to an EDHEC study entitled “Impact
of regulations on the ALM of European
pension funds”.
The call for reaction elicited 142 non-blank
responses and is the first international survey
in which both regulatory constraints and the
means of managing them—modern ALM
techniques—are assessed jointly. 93.7% of
respondents (95.3% of those from pension
funds) report that they are somewhat
or very familiar with accounting and/or
prudential constraints for pension funds;
the results of the call for reaction are very
much aligned with EDHEC’s views that
modern ALM techniques are instrumental in
managing minimum funding constraints and
that short-termism is counterproductive for
pension funds.
In addition, the respondents believe that
risk management is more instrumental in
protecting minimum funding ratios than
high initial funding ratios; the implications
are that regulations should provide
incentives to build internal models. More...
23/10/09
Institutional Investment
Since the turn of the millennium, a profound
shift in the management of insurance
companies has been underway. The main
catalysts of this shift are the growing
complexity of risks, the sophistication of the
means of measuring them, and the demands
made by investors for greater transparency
and for higher-quality management. In
this environment, prudential (Solvency II)
and accounting (IFRS) requirements must
also adapt to create new frameworks
offering a better view of the risks borne
by companies. More...
23/09/09
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. For one, optimisation
parameters (expected returns, volatilities,
and correlations) are defined as constant
across time, a practice which is contradicted
by empirical observation and does not make
it possible to take into account the length
of the investment horizon. For another,
and most importantly perhaps, liability
constraints and risk factors affecting them,
such as inflation risk on targeted spending,
are neither modelled nor explicitly taken
into account in the portfolio construction
process. More...
23/09/09
Executive Education
The number of applications for admission to the PhD in Finance offered by EDHEC-Risk Institute rose by more than 60% year-on-year. 2009 admissions proved extremely competitive and the entering class will bring together a group of exceptional individuals from six continents, representing sixteen nationalities. More...
22/09/09
Indices
Exchange-traded funds (ETFs), investment
vehicles that track a given index or
benchmark, are perhaps one of the greatest
financial innovations of recent years. Unlike
conventional index funds, however, ETF
units trade on stock exchanges at marketdetermined
prices, thereby combining the
advantages of mutual funds and common
stocks.
Although the first European ETF came
on the market only in 2000, assets under
management of ETFs amounted to USD 143
billion as of late December 2008 (Fuhr 2009).
In less than ten years, ETFs have become
a serious alternative to other financial
products, such as futures or index funds,
that allow participation in broad market
movements. In addition, ETFs are one of the
few products that seem not to have been
hit by the financial crisis. More...
30/06/09
Institutional Investment
Tightening accounting standards and
prudential regulations require a clearer
understanding of the risk management
and investment strategies used by
pension funds. Greater attention is being
paid to the volatility of the surplus, and there
is less tolerance of underfunding.
These changes call for an improvement in
ALM strategies and the use of state-ofthe-
art models—such as dynamic liabilitydriven
investments—for the design of
these strategies. The constraints to
which pension funds are subject must be
clearly understood and embedded in the
investment strategies. More...
27/04/09
Asset-Liability Management
The recent pension crisis has triggered a
fierce debate in most developed countries
between advocates of a tighter regulation
designed to provide explicit incentives for
pension funds to increase their focus on
risk management, and those arguing that
imposing short-term funding constraints
and solvency requirements on such
long-term investors would only increase
the cost of pension financing.
We analyse this question in the context of a formal
continuous-time dynamic asset allocation
model for an investor facing liability
commitments subject to inflation and
interest rate risks. In an empirical exercise,
we find that the presence of short-term
funding ratio constraints indeed involves
a positive welfare cost, but that cost is
not found to be prohibitive for
reasonable parameter values. More...
20/03/09
Real Estate
Institutional investors allocate considerable shares of their portfolios to real estate, primarily in anticipation of diversification benefits. According to a recent study by the EDHEC Risk and Asset Management Research Centre, institutional investors would like to use index-based products for this purpose; however, real estate indexing has proven challenging. It has been challenging largely because real estate features such characteristics—rarely found in other asset classes—as high unit values and indivisibility, limited liquidity, great heterogeneity; active property management is also required. More...
23/02/09
Regulation
The current credit crisis, triggered by losses on American subprime mortgages, has gradually turned into a global crisis of confidence. In October 2007, G7 finance ministers and central bank governors asked the Financial Stability Forum (FSF) to examine the causes of the crisis and make recommendations for managing it. Some of these recommendations (FSF 2008) dealt with accounting standards. The FSF recommended that these standards improve the treatment of off-balance-sheet items (for greater transparency), that they offer more guidance on the pricing of financial instruments in inactive markets, and that they require better information on pricing methods and on their sensitivity to the
assumptions and parameters chosen. More...
20/01/09
Commodities
To analyse the significant variations in oil prices over the past year, EDHEC have produced a new position paper entitled "Oil Prices: the True Role of Speculation," which argues that, despite the appeal of blaming speculators, supply-and-demand imbalances, the fall in the dollar and low spare capacity in the oil-producing countries are the major causes of this sharp rise. More...
26/11/08
Executive Education
CFA Institute and the EDHEC Risk and Asset Management Research Centre have extended their partnership in executive education events to now include an annual course on alternative investment. The newly introduced Alternative Asset Allocation Seminar presents advanced techniques to optimise asset allocation and risk management when alternative assets–such as real estate, commodities, private equity, or hedge funds–are added to institutional portfolios. More...
26/11/08
Fair Value Accounting
In the context of the measures being taken to put an end to the current financial crisis, the extent to which fair value accounting can be blamed—or whether it can be blamed at all—for the intensification of the slump has been widely debated.
This new EDHEC position paper shows that this debate, which ignores the real issues, has led to accounting changes that are at odds with their objectives. We examine the relevance of the accusations levelled at fair value and of the responses proposed in an attempt to improve the use of fair value accounting and make it more relevant to the economic realities faced by banks as well as
by companies in general. More...
25/11/08
Executive Education
With its residential and executive tracks, its organisation into consolidated weeks, and its e-learning tools, the EDHEC PhD in Finance is designed both for recent graduates who elect to join the EDHEC Risk and Asset Management Research Centre as research assistants and for established finance professionals who chose to remain in their full-time jobs. Since presenting the programme in April 2008, EDHEC has fielded more than 800 requests for information, 500 of them for the executive track alone. To respond to the exceptional interest shown by professionals, the opening of the executive track was brought forward one year. On October 13, a select group of 5 recent university graduates and 12 experienced professionals from the world over embarked on the three-year doctoral programme. More...
22/10/08
Performance Measurement
This fourth edition of the Alpha League Table 2008 looks into asset management in the United Kingdom. It is, once again, confirmation that, when it comes to alpha, UK asset managers outperform their counterparts on the continent.
The year’s results are better than last year’s: average alpha increased (approximately 30 basis points) to 2.9% and the average frequency of alpha (the number of funds, expressed as a percentage, delivering positive
alpha) is 52.2%; it was 46.3% last year. Once again, a specialist is at the top of the UK Alpha League Table. With a substantial increase in average alpha, Jupiter takes the top spot; it was in second place last year. With its average alpha of 4.23% and the frequency with which alpha is delivered coming to 73.75%, the firm posts an impressive performance. More...
10/10/08
Indices
This paper analyses a set of characteristics-based indices that have recently been launched on the US market and have been said to outperform standard market cap-weighted indices over particular backtest samples.
The EDHEC authors, Noël Amenc, Felix Goltz and Véronique Le Sourd, analyse the performance of an exhaustive list of such indices and show that the outperformance over value-weighted indices may be negative over long time periods and that characteristics-based indices do not significantly outperform simple equal-weighted indices.
Furthermore, an analysis of both the style exposures and the sector exposures of characteristics-based indices reveals a significant value tilt. When properly adjusting for this tilt, these indices do not show any abnormal performance. A revisited version of this paper was published in the February 2009 issue of European Financial Management. More...
03/09/08
Asset Management
The EDHEC European ETF Survey 2008 is part of the EDHEC Risk and Asset
Management Research Centre’s Indices and Benchmarking research programme. This programme has led to extensive research on indices and benchmarks in both the hedge fund universe and the more traditional investment classes. In 2006, EDHEC published a study of the quality
of major stock market indices. Following up on this study, EDHEC is carrying out
work that assesses the advantages and disadvantages of various new forms of
equity indices.
In view of the growth and development of ETFs in Europe, and in view of their
growing popularity as investment media for both index management and
the construction of benchmarks, it is only natural that EDHEC should devote
significant resources to research into ETFs. In 2006, with the support of iShares, we published the first EDHEC European ETF survey. The present survey, an update and extension of the 2006 survey, sheds light on recent developments and trends in ETF investing.
An article based on this survey was published in the Summer 2009 issue of the Journal of Alternative Investments. More...
23/07/08
Performance Measurement
The third edition of the Alpha League Table 2008, following on the heels of studies of French, Italian, and Spanish asset management, is devoted
to Switzerland. This new edition spotlights the firms that were ranked last year: all the firms that met our eligibility requirements in 2007 did so in 2008 as well, indicating the great robustness of the results.
The private bank Sarasin takes the top spot in this 2008 edition of the rankings. Sarasin’s average alpha improves 54 basis points to 3.65%. The
frequency of alpha (62.6%) is also better than it was last year (+190 basis points) and is among the best of the companies in the rankings. More...
22/07/08
Asset Management
As part of its ongoing policy of monitoring asset management practices and comparing them with the results of academic research, the EDHEC Risk and Asset Management Research Centre undertook an in-depth survey of the risk management, portfolio construction, strategic allocation, and performance measurement practices of European asset managers and investors.
The EDHEC European Investment Practices Survey is built on a sample of 229 institutional investors and asset managers who, with respect both to the nationality of survey respondents and to the amount of assets under management, are largely representative of the European asset management industry. In all, respondents to the survey have more than €10 trillion of assets under management and include the major European firms in the industry (nearly fifty respondents manage more than €100 billion each). More...
25/06/08
Performance Measurement
Following the French investment management rankings, the second publication of the Alpha League Table 2008 is devoted to Italy and Spain. This third edition of the rankings of Spanish and Italian asset management firms shows a fall in the alpha generated by the firms in the rankings. Average alpha for Spain fell from 2.38% to 2.08% and for Italy from 1.53% to 1.14%.
For Spain, Bankinter is once again in first place, with a score of 1.49 obtained on the strength of alpha of 3.22% and a very respectable frequency of 46.79%, the highest of any firm in the Spanish rankings. In second place is Ibercaja Gestión. Third place is held by Gesmadrid.
With a score of 0.39, Monte dei Paschi di Siena takes first place in Italy. Second in the rankings, up two places from last year, is Gruppo Ubi Banca. Pioneer Investments, in second place last year, is now in third.
More...
20/05/08
Performance Measurement
The Alpha League Table compares asset management companies on the basis of their capacity to deliver positive alphas. The table’s leading companies are the best providers of alpha, i.e., those that offer a good compromise between the value and frequency of the alphas produced. The third ranking for France reveals that both the frequency of alpha and the average alpha generated by French asset managers have fallen in comparison with the 2007 edition. All the same, the top ten companies have put up fierce resistance, conceding but a moderate drop in their alpha while improving their frequency. This edition of the Alpha League Table once again gives pride of place—eight of the top ten spots—to asset management firms (either specialised firms affiliated with
banks or independents whose capital is held by management). More...
17/04/08
Executive Education
EDHEC Business School believes that academic research has a vital role to play in promoting innovation and constantly raising professional standards and has spelled out its educational credo as "professional development through research-based excellence." The PhD in Finance it has organised in conjunction with the EDHEC Risk and Asset Management Research Centre is the culmination of this ambition. More...
18/03/08
Performance
EDHEC is jointly organising the IPE-EDHEC Institutional Asset Management Awards (IAMA) in 2008 with leading European institutional investment publication Investment & Pensions Europe (IPE). The awards will be presented to winning asset managers at a gala reception on June 12, 2008 in Paris on the occasion of the EDHEC Institutional Days, before an invited audience of investors, asset managers, investment banks, and other industry advisers and suppliers.
The aim of the IAMAs is to use state-of-the-art financial research to reward asset managers on an objective basis. For the first time Europe’s institutional
asset management industry will have an awards programme based on objective
and transparent criteria. More...
18/03/08
Alternative Investments
In a context of moderate performance in the stock and bond markets in 2007, Funds of Hedge Funds, which are often taken to give an aggregate view of the industry’s performance, returned 10.07% on average for the year, compared to 3.53% for the S&P 500 and 4.14% for the Lehman Global US Treasury Bond index.
In “Hedge Fund Performance in 2007”, Véronique Le Sourd, Senior Research Engineer with the EDHEC Risk and Asset Management Research Centre provides a strategy-by-strategy account of the performance of each hedge fund strategy included in the EDHEC Alternative Indexes. While all hedge fund strategies posted positive returns, a majority saw a slight fall-off in performance compared to 2006. Only five of the thirteen strategies obtained higher returns than in 2006: CTA Global, Emerging Markets, Equity Market Neutral, Global Macro, and Short Selling.
More...
14/02/08
Alternative Investments
Following recent initiatives by major investment banks such as Merrill Lynch and Goldman Sachs, EDHEC researchers have undertaken a detailed critical analysis of the various methodologies involved in hedge fund replication offers, examining the benefits and limits of the “factor-based” and “pay-off” distribution approaches. In the study, “The Myths and Limits of Passive Hedge Fund Replication,” co-written by Lionel Martellini with Noël Amenc, Walter Géhin and Jean-Christophe Meyfredi, the authors find that overall, one could only possibly hope to achieve truly satisfying results by combining the best of the two competing approaches.
On the one hand, the authors argue that standard implementation efforts of the factor-based approach, arguably the most natural and straightforward way to tackle the hedge fund replication problem, have mostly failed in thorough
empirical tests to produce satisfactory results on an out-of-sample basis. They also argue that the payoff distribution approach, on the other hand, while insightful and found to generate (relatively) satisfying results on an out-of-sample basis, unfortunately cannot be regarded as a method suitable for
performing hedge fund replication, at least not in a sense likely to meet investors' expectations, due to its documented failure to match a number of relevant time-series properties of hedge fund returns. More...
22/01/08
Real Estate
The EDHEC Risk and Asset Management Research Centre has released a new survey that is drawn from its research programme in asset allocation and alternative diversification. This programme has led to extensive research on the benefits, risks, and integration methods of alternative classes and instruments in asset allocation.
Real estate, probably the most traditional of alternative classes, is enjoying renewed favour as institutional investors search for diversification benefits and competitive yields. Institutional demand for real estate exposure has brought about improvements in market transparency and the development of new indirect and synthetic investment tools. With target allocations to real estate
increasing, research into real estate as an asset class must enable industry participants to refine traditional approaches and to consider real estate within the bounds of asset management and asset-liability management. It is in this way that research can help real estate take its place in multistyle, multi-class portfolios, contribute to the design of integration methods that optimise its risk/return trade-off, and, finally, enable the class to deliver on its full potential.
The EDHEC European Real Estate Investment and Risk Management Survey, the first phase of this research, takes stock of developments in the real estate investment market, reviews academic evidence on allocation to and management of real estate, and analyses the results of a large-scale, pan-European survey of institutional practices. More...
14/12/07
Alternative Investments
More than $200bn has flowed into commodity markets over the past five years, fuelling the rapid growth of investable indices and leading to a proliferation of new investment opportunities. Among the options for investors seeking exposure to commodities are: buying into natural resource companies, implementing a commodity futures programme, investing in long-only futures indices and their derivatives or via managed accounts, commodity pools,
mutual funds, hedge funds and funds of funds.
Financial investment in consumable and transformable assets is a very recent phenomenon and one of modest magnitude relative to the size of the underlying commodity markets or in comparison with other alternative classes and strategies. More...
16/11/07
Performance Measurement
For the fourth edition of the season, the Alpha League Table focuses on the United Kingdom. This ranking of asset management firms confirms the leadership of the biggest names in the City of London.
Aberdeen is at the top of our rankings. Its excellent rankings last year are thus
confirmed. It not only offers substantial average alpha, but is also capable of generating it from a significant portion of its actively managed funds. In second place is Jupiter Asset Management, a subsidiary of one of the largest German banks, Commerzbank AG. Third place belongs to M&G Securities, a
subsidiary of Prudential, the leading British insurance company.
The rankings are dominated by the firms that attract the largest asset inflows in their countries. So it is no surprise to see such firms as Schroders, Fidelity, Invesco, or M&G Securities among the top ten.
More...
10/10/07
Indices
A recent publication by the EDHEC Risk and Asset Management Research Centre has drawn conclusions that highlight the shortcomings of well known capitalisation- or price-weighted stock market indices and argues that the choice of benchmark for asset allocation or performance measurement is a task requiring particular care.
In a call for reactions to this publication, EDHEC finds that the answers of the more than eighty respondents (asset management firms, pension funds, insurance companies, private banks, etc.) tend to reinforce the conclusions drawn by the original publication.
Although it would at first appear that the majority of respondents are not, in general, dissatisfied with the indices they use as benchmarks (18.82% of respondents express degrees of dissatisfaction), further examination soon reveals that the shortcomings of these indices, such as inefficiency, lack of stability, and susceptibility to price bubbles, are widely recognised by the
industry professionals responding to EDHEC’s call for reactions. The call for reactions also shows that a considerable majority of respondents plan
to review the indices they use as benchmarks, either immediately or in the future. More...
17/09/07
Performance Measurement
Having ranked French, Italian, and Spanish asset management firms this year, the latest edition of the EuroPerformance EDHEC Alpha League Table is devoted to Switzerland. One of Geneva’s most renowned banks—private
bankers Lombard Odier Darier Hentsch—holds the top spot in this year’s ranking
of asset-management firms and this year yet again private banks dominate the rankings, occupying four of the top five spots. The rankings
are dominated by world-renowned firms attracting high levels of asset inflows.
As such, the rankings contain few surprises and—with eight holdovers from last year’s top ten—confirm the results of the previous edition.
The average score of the top ten firms in this ranking is 0.8%, a slight
improvement over last year (0.6%). This improvement is the result of an increase in the frequency of “alpha” funds (from 27.4% last year to 33.6% this year) and of a 16-basis point fall in average alpha (from 2.56% in 2006 to 2.4% in 2007).
More...
20/07/07
Institutional Investment
A new EDHEC position paper entitled "QIS3: meaningful progress towards
the implementation of Solvency II, but ground remains to be covered", by Samuel Sender, Research Associate with the EDHEC Risk and Asset Management Research Centre, and Philippe Foulquier, Director of the EDHEC Financial Analysis and Accounting Research Centre, contains EDHEC's views on the third Quantitative Impact Study carried out by CEIOPS (Committee of European Insurance and Occupational Pensions Supervisors) at the request of the European Commission within the framework of the Solvency II project. This position paper follows a series of EDHEC publications on the new solvency and supervisory standard for European insurance undertakings. "CP20: Significant improvements in the Solvency II framework but grave incoherencies remain" contained EDHEC's answer to CP20, a consultation process initiated by CEIOPS.
More...
20/06/07
Performance Measurement
Following the French investment management rankings, the second publication of the Alpha League Table 2007 is devoted to Spain and Italy. The Alpha League Table compares asset management companies on the basis of their capacity to deliver positive alphas. The table’s leading companies are the best providers of alpha, i.e., those that offer a good compromise between the value and frequency of the alphas produced.
These second rankings confirm the award winners from the previous edition. In Spain, two companies are ranked joint 1st: Bankinter, which was already crowned in 2006, and Ibercaja Gestion, a subsidiary of the Ibercaja Group. In the top 5 in Italy, we find companies that were already present in the previous rankings: Pioneer, Sella Gestioni and Bipiemme Gestioni. The winner of the 2007 edition for Italy is Banca Intermobiliare di Investimenti e Gestioni, a private bank specialised in personal wealth management.
More...
21/05/07
Performance Measurement
The Alpha League Table compares asset management companies on the basis of their capacity to deliver positive alphas. The table’s leading companies are the best providers of alpha, i.e., those that offer a good compromise between
the value and frequency of the alphas produced. This second ranking for France
reveals considerable stability in the production of alpha, with 17 of the 25 ranked companies appearing for the second time. This confirms that the alpha
being produced is the result of a management process that is more to do with the talent of the asset managers than with the configuration of the markets. More...
16/04/07
Wealth Management
Working from the observation that the contribution of asset-liability management techniques developed for institutional investors is not yet familiar within private banking, a new study from the EDHEC Risk and Asset Management Research Centre, entitled “Asset-Liability Management Decisions in Private Banking” shows the expected benefits of a transposition of that kind. According to the authors of the study, Noël Amenc, Lionel Martellini and Volker Ziemann, asset-liability management represents a genuine means of adding value to private banking that has not been sufficiently explored to date. Within the framework of private financial management offerings, personal wealth managers tend to confine their clients to mandates that are only differentiated through their level of volatility, without the client’s personal wealth constraints and objectives being genuinely taken into account in order to determine the overall strategic asset allocation. In that sense, private wealth management is not sufficiently different from the management of a diversified or profiled mutual fund. More...
19/03/07
Alternative Investments
In a working paper entitled ‘Quantification of Hedge Fund Default Risk’, which led to the publication of a full article in the Fall issue of the Journal of Alternative Investments, Jean-René Giraud and Stéphane Daul of the EDHEC Risk and Asset Management Research Centre, together with co-author Corentin Christory, examined numerous cases of hedge fund default in order to find the common factors behind fund failures.
The objective of the paper was to provide an initial framework for quantifying the non-financial extreme risk of hedge funds with the aim of factoring it into the portfolio construction phase. The paper examines the statistical properties of hedge fund failures and attempts to identify essential risk factors that can tentatively explain why certain funds are more likely to default on their investors and creditors than others. A revisited version of this paper was published in the Fall 2006 issue of the Journal of Alternative Investments. More...
24/01/07
Exchange-Traded Funds
In a new survey, The EDHEC European ETF Survey 2006, the EDHEC Risk and Asset Management Research Centre has carried out an in-depth study on the use of ETFs (Exchange-Traded Funds) by European investors. The results of the survey show that following rapid growth, ETFs are being widely used by European institutional investors, private bankers and asset managers. The increasing popularity of ETFs is reflected in the responses of survey participants. More than half of the respondents are current or planned users of ETFs in equity investments (61%), and this is the case for more than a quarter of respondents (26%) for bond investments.
More remarkably, among those that use Equity ETFs, 92% were satisfied, which indicates an extremely high level of satisfaction. With 45% of responses, the most distinct reason for satisfaction was the reliability of the tracking error. 23% were satisfied with the good performance of ETFs, while 21% were pleased with the level of liquidity, and only 4% cited the reduced expenses of ETFs. Interestingly, half of the respondents who were not satisfied with Equity ETFs pointed to the poor level of liquidity of ETFs. More...
18/01/07
Institutional Investment
The latest international conference organised by the EDHEC Risk and Asset Management Research Centre proved to be a great success, with 810 delegates attending the two-day EDHEC Institutional Days & ETF Summit 2006 at the CNIT in Paris on November 21st-22nd. More...
11/12/06
Institutional Investment
A new study jointly produced by the EDHEC Risk and Asset Management Research Centre and the EDHEC Financial Analysis and Accounting Research Centre 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. The report shows notably that the numerous provisions proposed by the IFRS are at odds with the good risk management practices put forward by Solvency II. While IFRS and Solvency II should lead to a genuine evolution in the management of insurance companies, by empowering them with respect to their risks (identification, measurement and management), one is forced to observe today that the standards implemented often oppose their initial objectives: the adoption of modern asset management and ALM techniques with a view to reducing the exposure to risks is considerably penalised by the IFRS treatment by leading to additional purely accounting volatility, without any connection to the economic reality.
More...
11/12/06
Performance Measurement
EDHEC and EuroPerformance have released their rankings of the top UK asset management companies: the Alpha League Table. Compared to the results obtained by leading asset managers in France, Italy and Spain, the figures from the UK are truly remarkable, with the top five companies obtaining a score of at least 2.5%. Average alpha for the entire list is 3.11%, with this figure being slightly higher among the insurance companies (3.62%) and asset managers (3.22%). The banking subsidiaries post average alpha of 2.61%.
More...
10/11/06
Indices
At a presentation to the members of the Af2i (French association of institutional investors) in Paris on September 12th, Noël Amenc, Director of the EDHEC Risk and Asset Management Research Centre, warned his institutional audience about the dangers of relying solely on stock market indices as a benchmark for their investment management performance. More...
18/10/06
Alternative Investments
In a little over a week, Amaranth Advisors, a respected, diversified multi-strategy hedge fund, lost 65% of its $9.2 billion assets. In a paper entitled ‘EDHEC Comments on the Amaranth Case: Early Lessons from the Debacle’, noted commodities expert Hilary Till, Research Associate with the EDHEC Risk and Asset Management Research Centre and Principal of Premia Capital Management, LLC, examines how Amaranth could have suffered such massive losses and draws lessons from this debacle for investors, funds of fund & energy fund risk managers, multi-strategy hedge fund managers, policy makers, and the alternative investment industry as a whole. More...
02/10/06
Asset Management Research
Following on from the success of its Hedge Fund Days in London (800 delegates) and Asset Management Days in Geneva (600 delegates), the EDHEC Risk and Asset Management Research Centre will be organising its inaugural two-day EDHEC Institutional Days 2006 at the CNIT in Paris on 21-22 November next. More...
20/09/06
Asset Management Research
As part of its aspiration to widely disseminate the results of its academic
research programmes, the EDHEC Risk and Asset Management Research Centre
has launched a circuit of three academic conferences allowing industry
practitioners and academic representatives to meet and exchange views on the
themes most relevant to the investment management industry in its largest context. Several attractive partnership opportunities exist for sponsoring these events.
More...
06/07/06
Alternative Investments
To mark the first anniversary of the EDHEC Hedge Fund Diversifier Benchmarks, the EDHEC Risk and Asset Management Research Centre and Lyxor Finance, jointly organised a breakfast seminar at Le Meurice hotel in Paris on 8th June to present the year’s results. Noël Amenc, PhD, Director of Research at EDHEC Business School and Director of the EDHEC Risk and Asset Management Research Centre, gave a presentation entitled "EDHEC Hedge Fund Diversifier Benchmarks: Concept and Results" to an audience of French institutional investors. More...
21/06/06
Asset-Liability Management
Lionel Martellini, Volker Ziemann. Institutional investors in general and pension funds in particular have been dramatically affected by negative stock market returns at the beginning of the millennium. In the context of a cumulative asset/liability deficit that was estimated at more than £55 billion in 2003 for the companies in the FTSE 100,
institutional investors are seeking new asset classes or forms of investment management that would allow them to broaden their traditional choice of asset allocation. An alternative investment offering has been introduced in the past several years, allowing investors to optimise the risk/return combination of their portfolio. More...
20/06/06
Alternative Investments
In the past few years, the EDHEC Risk and Asset Management Research Centre has enjoyed a very fruitful collaboration with Hedge Funds Review. The monthly publication of our academic articles has provided Hedge Funds Review with an original point of view on numerous hedge fund topics and has been very successful in bringing our research to the attention of alternative
investment professionals. More...
16/05/06
Performance Measurement
This third edition of the Alpha League Table concerns asset management companies in Switzerland. Out of the 51 companies that were eligible, only the best ten have been distinguished by taking account of the number of funds analysed and the steady creation of alpha. The results are extremely tight, with a score of 0.97% for the top-ranked company and 0.22% for the tenth-placed company in the selection. Even more dramatically, the top three are only separated by a hair’s breadth with a difference of less than one hundredth of a point! After the scores obtained by the French (Financière de l’Echiquier – 4%), Italian (Anima – 1.5%) and even Spanish asset managers (Gesbankinter – 3%), the results from the Swiss asset managers may appear to be slightly lacklustre, with the leader only obtaining a score of around 1%. However, that is not the case at all... More...
16/05/06
ETFs
Following the success of the recent EDHEC Asset Management Days (April 2005, Geneva) and EDHEC Hedge Fund Days (February 2006, London), the EDHEC Risk and Asset Management Research Centre has decided to organise the first edition of the EDHEC ETF Summit in Paris, on November 21st and 22nd, 2006. More...
13/04/06
Conference
The EDHEC Risk and Asset Management Research Centre was invited to participate in the "Forum de la Gestion Institutionnelle" (institutional investment forum), which took place in Paris on March 15th and 16th. More than 1,000 people attended the two-day conference at the Palais des Congrès. More...
04/04/06
Performance
EDHEC and EuroPerformance have released their rankings of the top Italian and Spanish asset management companies: the Alpha League Table 2006. The rankings were constructed on the basis of a genuine measure of alpha, using a methodology developed by EDHEC which corresponds to the state-of-the-art in financial research. In terms of alpha creation in both Spain and Italy, internationally invested funds dominate. A possible explanation lies in the low stock market capitalisation of the countries and the need for managers to look for higher levels of liquidity in larger markets. More...
16/03/06
Alternative Investments
The EDHEC Hedge Fund Days 2006, which were held at The Brewery in London from February 14-16, were a major success, bringing together more than 1,000 people in total, including institutional investors and their advisors, hedge fund and fund of hedge funds managers, and other practitioners with an interest in alternative strategies and institutional investment. From originally being one of the only events in Europe organised by an academic research centre for the benefit of professionals, the EDHEC Hedge Fund Days are now quite simply one of the biggest events on the hedge fund calendar.
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20/02/06
Alternative Investments
The results of the EDHEC European Alternative Diversification Practices Survey, which enabled EDHEC to produce a detailed assessment of current institutional practices in Europe, were presented to a distinguished group of institutional investors at the EDHEC Institutional Investor Summit in London on February 14th. The study generated responses from 151 European institutional investors representing, at 30/09/2005, a total volume of over one trillion euros of assets under management. The survey shows that 51% of European institutional investors are already exposed to hedge fund strategies. These represent, on average, 7% of their global assets. More...
20/02/06
Alternative Investments
Following its meeting in Sonoma, California on July 10-11, 2005, the Financial Economists Roundtable (FER), an international group of senior financial economists, issued a statement in which it warned about the risks involved in investing in hedge funds. The EDHEC Risk and Asset Management Research Centre, which has carried out a multi-faceted research programme on hedge funds over the past three years, has published a paper by Noël Amenc, PhD, and Mathieu Vaissié in response to the FER statement in which it comments on the FER’s recommendations. More...
18/01/06
Alternative Investments
Lionel Martellini, Mathieu Vaissié and Volker Ziemann. One of the by-products of the bull market of the 90’s has been the consolidation of hedge funds as an important segment of financial markets. It was recently announced that the value of the hedge fund industry worldwide had passed the $1 trillion mark for the first time, with approximately 7,000 hedge funds in the world, around 1,000 of which were launched in 2003. One of the key reasons behind the success of hedge funds in institutional money management is that such alternative investment strategies seem to provide diversification benefits with respect to other existing investment possibilities. In an attempt to fully capitalize on such beta benefits in a top-down approach, investors or (funds of hedge funds) managers must be able to rely on robust techniques for optimization of portfolios including hedge funds. More...
19/12/05
Performance
Following the launch of the EuroPerformance-EDHEC Style Ratings, the innovative system for rating the performance of European mutual funds, which measures the performance with regard to the risks that were really taken by the managers while at the same time taking the extreme risks being run and the managers’ capacity to generate outperformance into account, the French financial daily "La Tribune" asked EDHEC to apply the same approach to rating funds of hedge funds. The results of the inaugural rankings were published in France on December 13th. More...
19/12/05
Operational Risk
Operational risk is by far the most complex and intriguing issue investors are dealing with when allocating capital to hedge funds. Due to sophisticated trading strategies, potentially high levels of portfolio turnover, investment in illiquid or difficult to price instruments and a moderately regulated environment, hedge funds tend to exhibit high levels of extreme risks related to non-financial events (fraud and misappropriation, misrepresentation, model risk, infrastructure risk, etc.). More...
06/12/05
Performance
The EuroPerformance-EDHEC Alpha League Table was launched in Europe on November 15th. At a time when passive investment offerings are becoming more prevalent, it seems indispensable for both the asset management industry and investors to be able to identify talented active management “producers”, who, over and above the returns procured naturally by the fund’s long-term exposure (beta) to market and style risks, are capable of providing their clients with outperformance (alpha). More...
18/11/05
Performance
For the last four years, Edhec and EuroPerformance have been involved in producing the rankings for the Agefi Asset Management Awards. This year’s awards were held at Christie’s in Paris on October 19th. As in previous years, the rankings were established on the basis of the managers’ ability to produce “alpha”, or abnormal returns above and beyond the “normal” rewards due to the risks that the manager had taken. More...
20/10/05
Alternative Investment Education
Explosive growth in the funds flowing into alternative investments, institutional investors’ increased appetite for hedge funds and calls for greater regulation have heightened the need for standards within the industry. With examinees at the July exam session at an all time high and early registrations for the February testing period breaking new records, the Chartered Alternative Investment AnalystSM designation is being confirmed as the global standard of excellence in the alternative investment industry. More...
16/09/05
Alternative Investments
In a major survey of 183 industry players, including institutional investors and hedge fund and fund of hedge fund managers, conducted from May 31st to July 8th 2005, the EDHEC Risk and Asset Management Research Centre has found that alternative investment professionals are upbeat about future prospects for the industry and do not see the so-called “capacity effect” as a major threat to future profitability.
More...
10/08/05
Risk Management
Jean-Christophe Meyfredi. When risk managers make decisions, they need them to be based upon reliable measures. Strong assumptions are often made to simplify the risk estimation process and there has to be a trade-off between ease of estimate and accuracy. In this paper, “Is there a gain to explicitly modelling extremes? A risk measurement analysis”, Jean-Christophe Meyfredi of the Edhec Risk and Asset Management Research Centre develops a copula-based approach in order to estimate the Value-at-Risk of portfolios containing financial assets. He proposes a survival copula, the Heavy Right Tail copula, which could solve many difficulties that risk managers currently have to face. More...
15/07/05
Alternative Investments
Walter Géhin, Mathieu Vaissié. Two studies, by Watson Wyatt and UBS (both from March 2005), give a pessimistic view of the hedge fund industry’s capacity to generate long-term returns, due to its increasing size. Unfortunately, these studies focus almost exclusively on alpha. In the present paper, we show the importance of considering not only the exposure to the market (the traditional beta), but also the other exposures (the alternative betas) to cover all the sources of hedge fund returns. To do so, we examine the real extent to which the variability and level of hedge fund returns are affected by (static) betas, dynamic betas (i.e. factor timing), and pure alpha (i.e. security selection). A revisited version of this study was published in the Summer 2006 issue of The Journal of Alternative Investments.
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13/06/05
Alternative Investments
In spite of the recent advances in hedge fund indexing, designing good hedge fund indices remains a particularly challenging task in the face of challenges that are specific to the alternative investment industry. Two distinct purposes have to be distinguished: i) an index can be used as a benchmark for investments in specific styles, instruments or locations; or ii) it can be used as an investment vehicle. Each of these two purposes is associated with some challenging construction requirements. In particular, indices that act as benchmarks have to be representative, i.e., they should accurately reflect the whole universe of hedge funds following a particular style. On the other hand, indices that act as investment vehicles are obviously required to be investable in addition to being representative. More...
12/05/05
Alternative Investment Education
A record number of candidates sat the examinations leading to the Chartered Alternative Investment AnalystSM certification last month. More than 1,700 individuals representing 400 institutions worldwide have received or are seeking the professional designation that is becoming the industry’s hallmark of excellence. Acquiring a sound knowledge of alternative investments or keeping up with the latest advances to better serve investors are key motivations for joining the programme. Obtaining an independent certification of skills to increase credibility and develop a competitive edge is another powerful incentive drawing individuals and firms towards the CAIA designation. More...
09/03/05
Alternative Investments
In 2004, Edhec launched an international consultation process on the implementation of a new framework for Funds of Hedge Funds reporting. This consultation process was based on a series of recommendations proposed by Edhec with regard to the academic state-of-the-art on risk measurement in the alternative universe. The results of this consultation were presented to a panel of journalists on February 17th in London at a meeting hosted by FIMAT. More...
08/03/05
Performance
EDHEC-Risk Institute recently released a research paper that is highly critical of the existing fund rating systems.
Originating in 2002, when EuroPerformance, the leading French firm for the dissemination of mutual fund data, approached EDHEC-Risk Institute to consider the implementation of a value-added offering in the area of external analysis of the performance and risks of European investment funds, the Rating the Ratings document constitutes a detailed summary of the critical study and puts into perspective the responses given to the inadequacies of the existing ratings by the EuroPerformance/EDHEC-Risk Institute Style Ratings.
The method followed to implement the design of these new ratings was to carry out a thorough study of the insufficiencies of the existing rating methods in order to correct them by relying on the state-of-the-art in portfolio risk and performance measurement in a business context.
More...
01/12/04
01/12/04
01/12/04
Business Analysis
Increasing competition in the algorithmic trading space and prospective phenomenal growth in Direct Market Access (DMA) have led to several challenges for the buy-side and the sell-side. After analysing the situation from various perspectives, it is interesting to observe the disparity in interests and perceptions of both sides of the industry. Perhaps is it the right time for broker-dealers to take a fresh look at their clients’ needs and re-examine their strategies for order execution and/or business segmentation. More...
05/11/04
Performance
Agefi, the leading newspaper for the financial community in France, held its annual asset management awards in October. As for the past three years, this year's edition was organised in collaboration with EDHEC and EuroPerformance. Discover the methodology used for the Awards and the 2004 laureates. More...
05/11/04
AI Education
Explosive growth in the funds flowing into alternative investments, institutional investors’ increased appetite for hedge funds and calls for greater regulation have heightened the need for standards within the industry.
Founded in 2002 under the auspices of Thomas Schneeweis of CISDM and Florence Lombard of AIMA, the Chartered Alternative Investment Analyst AssociationSM is a vocal advocate of education and professionalism in the field of alternative investments, as well as being the sponsoring body for the CAIASM designation, the educational standard that is quickly becoming the hallmark of excellence in the alternative investment industry.
Recognized globally, the CAIASM charter certifies an individual’s mastery of the concepts, tools and practices essential for managing traditional and modern alternative vehicles such as real estate, private equity, commodities, hedge funds and managed futures.
More...
04/10/04
Business Analysis
The Edhec Business School and its research centre focusing on risk and asset management have entered into an agreement to launch Edhec-Risk Advisory, a consultancy firm concentrating on supporting the buy-side industry to meet the numerous challenges that it will have to face over the coming years in the risk management discipline. More...
30/09/04
Alternative Investment Education
EDHEC Business School has entered into a landmark agreement with the Chartered Alternative Investment Analyst AssociationSMand become its exclusive official provider of CAIASM exam preparatory courses for Europe. More...
03/09/04
Alternative Investments
Following on from the Edhec European Alternative Multimanagement Practices Survey, Edhec Business School has decided to set up a European consultation process for the improvement of fund of hedge fund reporting. This initiative is intended to be a response to criticism of the inappropriate content of the reports that are addressed to European investors, as highlighted by the Edhec European Alternative Multimanagement Practices Survey.
Initial results indicate that investors and FoHF managers agree on the most important issues:
- FoHF activity reports can be published every month. For 67% of the respondents, all major issues in both the performance and risk dimensions could be accounted for in a report issued on a monthly basis.
- FoHF activity reports should contain an in-depth analysis of the risk dimension: respectively 74% and 68% of the respondents consider that a style analysis and factor analysis should be included in the report, on top of traditional risk measures like volatility or drawdown measures.
More...
03/09/04
Risk
With the objective of conducting a European survey on Best Execution, Edhec-Risk Advisory has approached more than 150 institutions including the largest European investment managers.
The final results of this initiative were presented on the 9th June to 50 representatives of the largest investment firms and main brokerage houses. The survey enabled the current positioning of European Fund Managers vis-à-vis their new obligation of achieving transaction best execution to be assessed. The survey has revealed a major change in the relationship between asset managers and their intermediaries. More...
14/06/04
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