Advances in Asset Allocation Seminar New York, July 2015

Transcription

1 Advances in Asset Allocation Seminar New York, July 2015 Institute

2 The Choice of Asset Allocation and Risk Management õ Having learned through the recent crises about the limited payoffs and significant risks of excessive reliance on security selection models, investment managers and institutional investors are showing unprecedented interest in asset allocation approaches as sources of performance. õ Meanwhile, recent advances in academic research have paved the way for the development of a new generation of welfareimproving financial engineering techniques aimed at designing optimal investment solutions that take into account the specific constraints and objectives of the various types of investors. These solutions rely on an innovative exploitation of the benefits of the three competing approaches to risk management, namely risk diversification, risk hedging, and risk insurance, each of which represents a so far largely unexplored source of added value for investment management. õ Together with CFA Institute, EDHEC-Risk Institute has introduced seminars that take stock of the latest industry trends and research advances and clarify the distinction between true innovation and mere marketing claims. CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. The organisation is a champion for ethical behaviour in investment markets and a respected source of knowledge in the global financial community. CFA Institute s end goal is to create an environment where investors interests come first, markets function at their best, and economies grow. õ It is against this backdrop that EDHEC-Risk Institute has structured its work on asset allocation and risk management. Now regarded as the premier European centre for research in these fields, it plays a noted role in furthering asset allocation concepts and techniques and systematically highlighting their practical uses to the investment management industry. 2

3 Advances in Asset Allocation Seminar õ The Advances in Asset Allocation Seminar is an intensive three-day course that will provide 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 and solutions. õ The first part of the seminar focuses on bridging the gap between portfolio theory and portfolio construction and outlines a coherent framework in which can be framed optimal decisions for the design of well diversified asset class and asset allocation benchmarks. It discusses the limits of modern portfolio theory and presents solutions to address estimation issues. It includes a presentation of portfolio optimisation models that takes non-normality risks and realistic preferences into account. It concludes with an application to the use of improved techniques for designing truly well-diversified improved equity or strategic allocation benchmarks. The second part of the seminar shifts from static risk diversification to dynamic risk hedging and focuses on the design of optimal allocation strategies for investors endowed with longterm liability or consumption objectives. It presents the state of the art in asset-liability management (ALM) with a specific emphasis on the liability-driven investment (LDI) paradigm in institutional money management and its counterpart in private wealth management and retail investment management, the life-cycle investment (LCI) paradigm. It discusses the challenges related to the implementation of novel forms of interest rate- and inflation hedging portfolios. Finally, it explores the interaction between the performance-seeking and liability-hedging components in investors portfolios. Besides, it concludes on the design of improved forms of target-date funds. The final part of the seminar shows how to account for regulatory, accounting, and other short-term constraints, which requires implementing risk insurance, in addition to risk diversification and risk hedging. It introduces the risk-controlled investing paradigm, which complements the LDI/LCI paradigm in the presence of short-term risk budgets. It shows how long-term objectives and short-term constraints can be simultaneously taken into account in a comprehensive disciplined asset allocation framework. Each afternoon of the seminar is dedicated to integrative case studies providing practical applications in both the institutional and individual money management contexts, drawing examples from asset-only and asset-liability management perspectives, including the design of improved equity and bond benchmarks, the design of improved forms of target date funds, the transposition of ALM techniques to private wealth management as well as the use of dynamic LDI strategies for corporate and state pension funds, and also for insurance companies. õ The seminar is presented in a highly accessible manner by an instructor who combines academic expertise and industry experience. It strikes a balance between exploration of new models and a study of applications. 3

4 Key Learning Benefits õ Bridge the gap between modern portfolio theory and practical portfolio construction to build stable models: find out how to make parameter estimation manageable and reliable; discover how to account for non-normality, asymmetric risk preferences, and parameter uncertainty in portfolio construction. õ Understand optimal benchmark construction and their application to smart index construction: review the limitations of traditional methodologies; find out about maximum Sharpe ratio minimum variance, equal-risk contribution, and other forms of benchmarks; find out how to measure diversification and how to manage diversification; understand how to move away from asset allocation to factor allocation decisions. solutions: learn to introduce risk management constraints into asset allocation and discover new risk management techniques; find out how to design investment solutions for the retail and institutional markets so as to take into account risk constraints and performance objectives, and how to use new LDI approaches to optimise regulatory constraints. õ Understand state-of-the-art ALM and LDI: review the fundamentals of ALM and discover the latest developments; find out how to use derivatives for liability matching; uncover the potential of ALM in private banking and understand the specificities of ALM for sovereign investment funds; incorporate the sponsor perspective in ALM and incorporate funding ratio and inflation risk constraints in LDI; assess the inflation-hedging potential of alternative asset classes and strategies; and find out how to develop improved forms of target date funds that extend beyond simple deterministic schemes and exploit changes in market conditions. õ Use dynamic beta management, risk budgeting, and dynamic core satellite allocation to refine investment management and risk management processes and design new investment 4

5 Who Should Attend õ The programme is intended for investment management professionals who advise on or participate in the design and implementation of asset allocation policies and portfolio models, and for sell-side practitioners who develop new asset management and ALM solutions for investors. õ Past editions of the seminar have attracted a large crosssection of buy- and sell-side institutions from thirty-four countries worldwide. Global giants, national champions, and small boutiques were represented by their senior officers and investment specialists. Participants included practitioners with the following functions and from the following types of institutions: Excellent mix of theoretical concepts and their incorporation to portfolio management. Carlos Veintemillas, Deputy CIO, Texas Permanent School Fund, USA The best training course that I have attended in my professional career. Fast paced, cutting edge and practical. David Rae, Head of Investment Analysis, New Zealand superannuation fund, New Zealand In my opinion this seminar was on the leading edge of asset allocation and risk management and provided a balanced presentation of academic theory and practical/implementable solutions. Andrew Sawyer, Chief Investment Officer of MainePERS. Functions Chief executive officers/ Managing directors Chief investment officers/ Directors of investments Heads of asset allocation/ investment strategy/alm Heads of investment solutions/ structuring/financial services Portfolio managers Risk managers Senior analysts and investment officers Senior investment advisers/ consultants Senior research officers Institutions Asset management companies Consultancies Insurance and reinsurance companies Investment banks Non-financial companies Pension funds, endowments and foundations Private banks Regulatory authorities Research firms Sovereign investment vehicles Excellent three-day tour through latest advances in asset allocation, from harvesting risk premia (return portfolio) and liability hedging (matching portfolio) to the goal-based optimal dynamic allocation between them. Rene Groteboer, SNS Asset Management Head of Allocation, Netherlands Very high level and usefull seminar. Great speaker. Good quality of participants. A lot of food for thought. You don t go out with one possible way of doing things, but with ideas on how to improve your own process. Worth the time and investment. Sylvain Ratelle, Vice President & Strategist, Valeurs Mobilières Banque Laurentienne, Canada 5

6 Seminar Instructor Lionel Martellini, PhD Lionel Martellini is Professor of Finance at EDHEC Business School and Scientific Director of EDHEC-Risk Institute. Lionel has consulted on risk management, alternative investment strategies, and performance benchmarks for various institutional investors, investment banks, and asset management firms, both in Europe and in the United States. His research has been published in leading academic journals, including Management Science, the Journal of Financial and Quantitative Analysis and the Review of Financial Studies, and leading practitioner journals, including the Financial Analysts Journal, the Journal of Derivatives, the Journal of Fixed Income, the Journal of Alternative Investments, the Journal of Investment Management, and the Journal of Portfolio Management. He sits on the editorial board of the Journal of Portfolio Management and the Journal of Alternative Investments. Lionel has co-authored and co-edited reference texts on fixed-income management and alternative investment such as the much-praised Fixed-Income Securities: Valuation, Risk Management and Portfolio Strategies (Wiley Finance) and is regularly invited to deliver presentations at leading academic and industry conferences. He holds graduate degrees in business administration, economics, statistics and mathematics, as well as a PhD in finance from the Haas School of Business at UC Berkeley. The course was nothing short of excellent. Lionel Martellini did a great job of presenting complex concepts in an understandable fashion. I also learned a great deal that I can apply in my responsibilities to significantly improve our risk management processes. It was an invaluable experience that I would recommend to any asset manager with liability matching responsibilities. Paul Fahey, VP, Pension Investments, NAV CANADA, Canada Professor Martellini teaches very complicated concepts in an easy to understand way. It was three days well spent at seminar to learn of the best practices in Asset Allocation. Harsh Parikh, Portfolio Manager & Strategist, BNY Mellon Asset Management, USA Professor Martellini is a fantastic presenter: He makes the audience understand the intuition behind theoretical concepts. He is enthusiastic and knowledgeable and keeps the audience engaged. It was a pleasure attending his seminars. Farid Tabatabaie, Associate, CPP Investment Board, Canada Lionel Martellini is a wizard in translating technical aspects of quantitative finance into a very intuitive and interactive dialogue. I have already recommended this seminar to my colleagues! James Kwon, Senior Associate, CPP Investment Board, Canada 6

7 Day One Risk diversification and the design of optimal performance-seeking portfolios Bridging the gap between portfolio theory and portfolio construction Seminar contents: identifying paradigm shifts in the asset management industry, understanding when and why modern portfolio theory fails in the real world, making covariance matrix estimation manageable and improving parameter estimates, incorporating active views in a Bayesian framework, implementing alternative portfolio models that integrate non-normality risks and realistic preferences, constructing well-diversified efficient benchmarks, and identifying alternative forms of indices and benchmarks. Introduction Paradigm shifts in the asset management industry õ Alpha-beta separation and risk management: understanding the difference between normal returns and abnormal returns, understanding the difference between investment products and investment solutions; understanding the main features that are present in most/ all investors needs; understanding the need to reconcile long-term objectives and short-term risk budgets and dollar budgets. õ From asset management to risk and asset management: understanding the value of risk management in the asset management process; defining the three possible approaches to risk management: risk diversification, risk insurance, and risk hedging; shifting from ex-post risk management to using risk budgets as key ingredients in the design of the asset allocation solution; introducing the new paradigm that makes it possible to design investment solutions that meet investors needs. Constructing Efficient Asset Allocation Benchmarks From Asset Allocation to Factor Allocation Decisions õ From asset allocation to risk allocation: asset allocation decisions across asset classes versus portfolio construction decisions within asset classes; allocating to risk factors versus allocating to asset classes; from measurement of factor exposures to passive replication of, and optimal allocation to, factor exposures; consequences for institutional management of this change of paradigm. õ Measuring diversification: weight-based versus risk-based measures of diversification; measuring the number of independent bets in asset allocation decisions; turning correlated asset returns into uncorrelated factor returns; pros and cons of using principal component analysis, and minimal linear torsion. õ Managing diversification: from naive diversification to scientific diversification; assessing the out-of-sample performance of global minimum asset allocation variance benchmarks, maximum Sharpe ratio asset allocation benchmarks, equal risk parity asset allocation benchmarks. 7

8 Day One Constructing Efficient Asset Class Benchmarks õ Inefficient portfolios in efficient markets; inefficiency of cap-weighted indices; outperformance of equally-weighted indices; implications of the Capital Asset Pricing Model regarding the efficiency of cap-weighted equity indices; from inefficient equity benchmarks to inefficient bond benchmarks. õ From naive to scientific diversification: implementing and improving risk parameter estimates with factor models and Baysesian techniques; dealing with non-normality and asymmetric risk preferences; the benefits and limits of global minimum variance portfolios, further information regarding the idiosyncratic volatility puzzle; hard versus flexible norm constraints; max Sharpe ratio approach; maximum diversity, equal risk contribution and risk parity benchmarks. õ Smart beta benchmarks: alpha versus beta versus smart beta; measuring and managing systematic risks of smart beta benchmarks; measuring and managing specific risks of smart beta benchmarks; smart beta benchmark with tracking error constraints; from the multi-management of alphas to the multi-management of smart betas. 8

9 Day Two Risk hedging and the life cycle and liability-driven investing paradigms Efficient long-term allocation strategies for institutional, private, and retail investors Seminar contents: reviewing the latest advances in ALM and LDI; examining the inflation-hedging properties of traditional and alternative investments; designing new costefficient forms of inflation-hedging portfolios; hedging extreme inflation risk; incorporating the sponsor perspective into ALM; accounting for long-term objectives in portfolio construction and implementing new life cycle investing (LCI) strategies. Towards Efficient Risk Hedging From Asset Management to Asset Liability Management Implementing state-of-the-art liability hedging õ A brief history of ALM: cash flow matching, immunisation, surplus optimisation; fund separation theorem and LDI strategies; performanceseeking portfolio vs. liability-matching portfolio; using derivatives to implement the liability-matching portfolio. õ Liability-hedging in the short-run and in the long-run: the trade-off between the short-term perspective, where interest rate risk dominates, and the long-term perspective, where inflation risk dominates; term structure of risk hedging benefits of various asset classes from an asset management and an ALM perspective; realised versus expected inflation risk; diversification versus hedging inflation risk; hedging inflationlinked liabilities without inflation-linked bonds; designing long/ short nominal bond portfolio strategies to neutralise the exposure to unexpected changes in expected inflation. õ Beyond LDI: from fund separation theorems to fund interaction theorems; performance seeking portfolios with attractive liability-hedging properties and liability-hedging portfolios with attractive performance properties; inflation hedging portfolios with enhanced performance; reducing the required allocation to the performance-seeking portfolio by enhancing the liability-hedging portfolio; selecting asset classes on the basis of their portfolio properties versus standalone properties; trading-off diversification benefits versus hedging benefits. õ Case studies of LDI strategies: constructing better bond benchmarks from an ALM perspective; bond portfolios with duration constraints and improved Sharpe ratios; constructing performance benchmarks with improved hedging benefits; liability-friendly equity benchmarks based on selection and/or optimisation procedures.. Accounting for the presence of long-term objectives in portfolio construction õ From short-term static portfolio selection to long-term intertemporal portfolio selection: optimal allocation decisions in the presence of a stochastic opportunity set; hedging demands with respect to interest rate risk, inflation risk, equity volatility and risk premium risks; using econometric techniques to estimate latent meanreverting variables such as equity volatility or equity risk premium. õ Case study of LCI strategies: benefits and limits of current forms of target-date funds; designing improved forms of LCI strategies; implementing market-dependent allocation strategies; meeting the challenges of mass customisation and robust implementation. 9

10 Day Three Risk insurance and the risk-controlled investing paradigm Achieving long-term investment objectives while respecting short-term risk budgets and constraints Seminar contents: moving from static to dynamic beta management; optimising risk budgeting within the core satellite architecture; using dynamic core satellite investing to achieve dissymmetric management of the risk budget; blending active management and risk management in a unified framework; designing new asset management offerings and novel LDI solutions. Towards Efficient Risk Insurance From Asset Liability Management to Risk and Asset Liability Management From static to dynamic beta management õ From risk diversification to risk hedging: introducing risk management constraints into asset allocation; defining margin for error as a function of risk aversion; implementing time- and state-dependent asset allocation strategies for risk management; reviewing portfolio insurance strategies: constant proportion portfolio insurance vs. option-based portfolio insurance; understanding risk management techniques based on replication and on derivatives; introducing exotic structures Dynamic core satellite management and new approaches for improved investment management offerings õ Using risk budgets as ingredients in the design of the optimal portfolio strategy; implementing martingale techniques in optimisation; taking into account mean reversion in equity returns within the context of a risk controlled strategy; incorporating maximum drawdown constraints in product design; minimising the costs of downside protection and maximising access to the upside potential. Case studies of new investment management offerings: õ Designing improved forms of long-term investment strategies for institutional or individual investors : capturing the benefits of mean-reversion in equity returns; including maximum drawdown constraints; introducing goal-oriented strategies; reducing the opportunity cost of downside risk hedging; using improved asset class benchmarks within long-term investment strategies. õ Designing dedicated ALM solutions for private wealth management: taking into account a private client s full profile; including consumption/bequest objectives and shortterm performance constraints. õ Designing dedicated equity solutions for insurance companies facing Solvency risk budgets: investing in equities within Solvency II; standard formula versus full or partial internal models; risk management in Pillar I versus Pillar II; optimising the use of capital charges via dynamic asset allocation strategies; implementing dynamic Solvency benchmarks with active managers; dynamic Solvency benchmarks versus structured products. 10

11 Institute CFA Institute is the global association for investment professionals. It administers the Chartered Financial Analyst (CFA ), CIPM curriculum, Claritas Investment Certificate, and exam programmes worldwide, publishes research, conducts professional development programmes, and sets voluntary, ethics based professional and performance-reporting standards for the investment industry. As part of its commitment to professional excellence, it has developed the Advances in Asset Allocation Seminar jointly with EDHEC-Risk Institute specifically for senior-level investment professionals. CFA Institute has more than 130,000 members, of which 18,500 reside in the European Union. Globally there are more than 123,000 CFA charterholders, as well as 149 affiliated professional CFA societies in 60 countries and territories. CFA Institute s global operations centre is in Charlottesville, Virginia, USA, with offices also in London, Hong Kong, Brussels, Mumbai, and New York. More information: Since 2001, EDHEC has been pursuing an ambitious policy in terms of international research. This policy, known as Research for Business, aims to make EDHEC an academic institution of reference for the industry in a small number of areas in which the school has reached critical mass in terms of expertise and research results. Among these areas, asset and risk management have occupied privileged positions, leading to the creation in 2001 of a major research facility: EDHEC-Risk Institute. This institute now boasts a team of over 95 permanent professors, engineers and support staff, as well as 48 research associates from the financial industry and affiliate professors. EDHEC-Risk Institute is located at campuses in Singapore, which was established at the invitation of the Monetary Authority of Singapore (MAS), the City of London in the United Kingdom, and Nice, France. In addition, it has a research team located in the United States. The philosophy of the institute is to validate its work by publication in prestigious academic journals, but also to make it available to professionals and to participate in industry debate through its Position Papers, published studies and conferences. Each year, EDHEC-Risk organises three conferences for professionals in order to present the results of its research, one in London (EDHEC-Risk Days Europe) one in Singapore (EDHEC-Risk Days Asia), and one in New York (EDHEC-Risk Days North America) attracting more than 2,500 professional delegates. To ensure the distribution of its research to the industry, EDHEC-Risk also provides professionals with access to its website, which is entirely devoted to international risk and asset management research. The website, which has more than 65,000 regular visitors, is aimed at professionals who wish to benefit from EDHEC- Risk s analysis and expertise in the area of applied portfolio management research. Its monthly newsletter is distributed to more than 1,500,000 readers. EDHEC-Risk Institute also has highly significant executive education activities for professionals. In partnership with CFA Institute, it has developed advanced seminars based on its research which are available to CFA charterholders and have been taking place since 2008 in New York, Singapore and London. EDHEC-Risk Institute has an original PhD in Finance programme which, in addition to its highly selective residential track for young talents worldwide, has an executive track for high level professionals who already have masters degrees from prestigious universities and significant industry experience. These professionals are looking to go beyond their usual activities in order to develop research on the concepts that are relevant to their occupation. Complementing the core faculty, this unique PhD in Finance programme has highly prestigious affiliate faculty from universities such as Princeton, Wharton, Oxford, Chicago and CalTech. In 2012, EDHEC-Risk Institute signed two strategic partnership agreements with the Operations Research and Financial Engineering department of Princeton University to set up a joint research programme in the area of risk and investment management, and with Yale School of Management to set up joint certified executive training courses in North America and Europe in the area of investment management. 11

12 Fees and Billing Information Fees Standard rate: USD6,800/EUR6,000 CFA Institute member rate: USD5,100/EUR4,500 Institutional Investor rate: USD5,670/EUR5,000 Fees include instruction, documentation, refreshments at breaks, and lunch. Accommodation is not included. Billing and payment The fee is billed upon registration and must be settled before the seminar begins. Payment can be made by credit card or wire transfer. Invoicing will be in Euros. Transfer or cancellation Transfer of registration to a colleague, upon written notice, is allowed and free of charge. Transfer of registration fees to another EDHEC-Risk Institute programme must be requested in writing and is subject to the following charges: 45 to 30 days notice: 15% of the tuition fee; 29 to 11 days notice: 30% of the tuition fee; 10 days notice or less: 50% of the tuition fee. Cancellations of confirmed seats must be received in writing and are subject to the following charges: 45 to 30 days notice: 25% of the tuition fee; 29 to 11 days notice: 50% of the tuition fee; 10 days notice or less: 100% of the tuition fee. Schedule A typical programme day lasts from 8:30 am to 5:30pm and is usually divided into lectures and application cases. The two class sessions in each halfday period are separated by 30 minute refreshment breaks. Lunch is included. Venue Le Parker Méridien New York 119 West 56th Street New York, NY United States Tel.: Continuing Education Credits As a participant in the CFA Institute Approved-Provider Programme, EDHEC-Risk Institute has determined that this programme qualifies for 20 credit hours. If you are a CFA Institute member, continuing education credit for your participation in this programme will be automatically recorded in your CE tracking tool. Further Information and Registration For further information, contact Mélanie Ruiz at: EXECeducation@edhec-risk.com or on: To register, visit: Institute EDHEC-Risk Institute 393 promenade des Anglais BP Nice Cedex 3 - France Tel: +33 (0) EDHEC Risk Institute Europe 10 Fleet Place, Ludgate London EC4M 7RB - United Kingdom Tel: EDHEC Risk Institute Asia 1 George Street # Singapore Tel: EDHEC Risk Institute North America One Boston Place, 201 Washington Street Suite 2608/2640, Boston, MA United States of America Tel: EDHEC Risk Institute France rue du 4 septembre Paris - France Tel: +33 (0) CFA Institute 915 East High Street Charlottesville, VA USA Tel: Web: