EDHEC-Risk Newsletter
December 13, 2017 Asset Management Research
 
 
Events
 
Books


EDITORIAL

The Rise of the Robo-Advisors: The Start of a New Industrial Revolution in Wealth Management? At the risk of stating the obvious, let us recognise that individual investors, just like institutional investors, are facing complex problems for which they need dedicated investment solutions, as opposed to off-the-shelf investment products. If mass production (as in product) happened a long time ago in investment management, with the introduction of commingled mutual funds, the missing piece of the puzzle is now mass customisation (as in customised solutions). Unlike mass production, where products are essentially the same for all customers, mass customisation attempts to fill unique customer needs by building customised products off a standardised product platform. Hence, mass customisation is by definition a distribution and manufacturing technique that combines the flexibility and personalisation of “custom-made” products with the low unit costs associated with mass production. More...


INDUSTRY ANALYSIS

Research for Institutional Money Management - P&I Supplement May 2016 In the May 2016 issue of the Research for Institutional Money Management supplement to Pensions & Investments, we look at whether it would make sense for a pension fund to hold a customized equity portfolio engineered to exhibit enhanced liability-hedging properties vs. holding a broad off-the-shelf equity index. We conclude that investors with liability constraints will strongly benefit from switching their equity portfolio from a cap-weighted benchmark to a dedicated liability-friendly portfolio based on the selection of stocks which combine low volatility and high dividend yields and a constrained minimum-variance optimization. More...

In what circumstances is it useful to examine whether the futures curve is in backwardation or in contango? Examining whether a futures curve is in contango or backwardation can be useful in three circumstances. Over sufficiently long time horizons, a clear relationship between a futures market’s returns and its futures curve shape is clearly observable. And further, in choosing amongst commodity futures contracts for long-term investing, the curve shape has been found to be a key differentiator amongst commodity markets. More...

Is There a New Swing Producer in the Oil Markets? Can U.S. shale producers be regarded as the new swing producers in the crude oil markets? This brief article will address this question from both a physical-oil-market standpoint and from an energy-financing standpoint. The article will conclude that basically the answer is no unless one adopts a very flexible definition of “swing producer.” More...


FEATURES

Initial Margin for Non-Centrally Cleared OTC Derivatives – Overview, Modelling and Calibration This paper provides a detailed overview and analysis of the forthcoming new framework to be used by large financial institutions to determine initial margin (IM) and variation margin (VM) payments when trading non-cleared over-the-counter (OTC) derivatives. The Fédération Bancaire Française (FBF) supports the research chair on “Innovations and Regulations in Investment Banking” in which this research was produced. Coming into effect in September 2016, this new framework was set out in 2015 and is based on the recommendations of the BCBS/IOSCO Working Group on Margin Requirements (WGMR). This framework has been in development since 2009, and was a response to the events of September 2008 which saw the bankruptcy of Lehman Brothers, the bailout of AIG and the federal takeover of Fannie Mae and Freddie Mac, all of whom had large exposures to the OTC derivatives market. More...


INTERVIEW

Research must be at the core of investment decisions and long-term allocation - an interview with Thierry Roncalli In this month's interview, we talk to Thierry Roncalli, Head of Research & Development at Lyxor, about the latest study from the Lyxor “Risk Allocation Solutions” research chair, which falls under EDHEC-Risk’s “ALM and Asset Allocation Solutions” programme. We also touch upon the main challenges that remain when it comes to efficiently harvesting alternative risk premia, and the value of academic research for the hedge fund industry. More...


EDHEC PUBLICATIONS

Frictional Diversification Costs: Evidence from a Panel of Fund of Hedge Fund HoldingsJuha Joenväärä, Bernd Scherer. Using FoFs’ holdings data, the authors analyse the diversification choices of fund of hedge fund managers. Diversification is not a free lunch. It is not available for every fund of fund. Instead they find a positive log-linear relation between the number of constituent funds in a fund of hedge fund (n) and the respective assets under management (aum). More precisely it takes the form: n2 ∝ AuM. This relation is consistent with the predictions from a model of naive diversification (1/n) with frictional diversification costs such as due diligence costs. Their evidence is econometrically robust across alternative specifications and explanations. More...

A Primer on the Tax Framework of Offshore and Onshore Hedge FundsMichel Brocard, François-Serge Lhabitant. The goal of this paper is to provide an introduction to the typical legal structures used by hedge funds and their major tax implications for the fund, for fund managers, for sponsors and for various investor types. Most of our discussion is centred on U.S. federal income taxes; we will occasionally discuss state or local taxes. Obviously, other countries have different tax laws that may provide different or specific tax outcomes, and it is beyond the scope of our paper to review them. More...

Skewness Strategies in Commodity Futures MarketsAdrian Fernandez-Perez, Bart Frijns, Ana-Maria Fuertes, Joëlle Miffre. Investors are known to display a preference for equities with positive skews (or lottery-like payoffs) and an aversion to equities with negative skews (or those for which the probability of large losses is higher than that of similar large gains). As a result, equities with positive skews tend to be overpriced and thus offer low expected returns, while equities with negative skews tend to be underpriced and thus offer high expected returns. While the pattern is well documented in the equity market literature (see, for example, Amaya et al., 2015, for some recent evidence), the question as to whether skewness matters to the pricing of commodity futures has not yet been addressed. More...


EDHEC-RISK NEWS

Insights on retirement investing from Lionel Martellini, Director of the EDHEC-Risk Institute In a recent exclusive video interview, filmed during the EDHEC-Risk Days in London, Lionel Martellini, Professor of Finance at EDHEC Business School and Director at EDHEC-Risk Institute provides his insights on retirement investing. More...

Professor Riccardo Rebonato joins EDHEC-Risk Institute EDHEC-Risk Institute is very delighted to announce that Professor Riccardo Rebonato, a specialist in interest rate risk modelling with applications to bond portfolio management and fixed-income derivatives pricing, has joined EDHEC-Risk Institute on May 2, 2016. He also joined the EDHEC Faculty. Professor Rebonato was previously Global Head of Rates and FX Research at PIMCO. More...

The Journal Of Investment Management (JOIM) - Call for papers The Journal Of Investment Management (JOIM) is currently accepting manuscript submissions in the area of investment management and related fields. Asset allocation, optimisation, retirement investing, behavioural finance and liquidity are of particular interest. More...

Frédéric Ducoulombier discussed factor investing at The Asset 2nd ETF Asia Summit on 15 June, 2016 in Taiwan Frédéric Ducoulombier, Founding Director, EDHEC Risk Institute-Asia, was invited to speak on the theme of factor investing through ETFs at The Asset 2nd ETF Asia Summit in Taiwan on 15 June, 2016. The summit brought together investors, asset managers and product providers to discuss and debate the factors likely to drive the development of the ETF market in Asia. More...

Hilary Till, Research Associate, to discuss movements in the oil markets at NYSSA event on 30 June, 2016 in New York Hilary Till, Principal at Premia Capital Management, LLC and Research Associate at EDHEC-Risk Institute, will be speaking at an event to be held in New York on 30 June, 2016 on the theme "A Global View of Commodity Markets", organised by the New York Society of Security Analysts. More...