Alternative Asset Allocation Seminar New York, 30 March-1 April 2010, The New York Helmsley Hotel

Transcription

1 Alternative Asset Allocation Seminar New York, 30 March-1 April 2010, The New York Helmsley Hotel Institute

2 The Choice of Asset Allocation and Risk Management õ Having learnt in recent years about the limited payoffs and significant risks of excessive reliance on asset selection models, investment managers and institutional investors are showing unprecedented interest in asset allocation approaches as sources of performance. õ Concurrently, the emergence of alternative asset classes and strategies with risk profiles that are very different from those of equity and fixed-income products has created new opportunities for asset allocation in both conceptual and operational terms. õ The latest financial market meltdown has exposed the error of reliance on diversification as the sole means of risk management, highlighted the challenges of alternative investment, and accelerated the recognition of asset allocation and state-of-the-art risk management as the keys to improved multi-style, multi-class investment solutions. õ Following and paralleling these developments, a profound paradigm shift is currently affecting the entire financial industry, with asset allocation and risk management increasingly recognised as the key ingredients on which to focus in order to design improved multi-style multi-class investment solutions. õ It is against this backdrop that EDHEC-Risk Institute has structured its work on asset allocation and risk management and deployed it across both the traditional and alternative investment universes. Now regarded as the premier European centre for applied financial research, it plays a noted role in furthering asset allocation and risk management concepts and techniques and systematically highlights their practical uses in the institutional, private, and retail investment spaces. 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 world s leading association of investment professionals and has been an unwavering promoter of higher industry standards for more than sixty years. EDHEC has demonstrated in a very short time a level of commitment to, and excellence in, the research of alternative assets. [ ] EDHEC pushes me to maintain my professional skills at the highest level. Mark Anson, CFA, President and Executive Director, Investment Service, Nuveen Investments, Chicago, Illinois, USA 2

3 Alternative Asset Allocation Seminar õ The Alternative Asset Allocation Seminar is an intensive three-day course that will impart advanced concepts and practical tools for optimal construction and risk management of multi-style multi-class portfolios. It will also enable participants to derive the full benefits of alternative investments for asset management and asset-liability management (ALM) while controlling for their specific risks. õ The first day of the seminar introduces the state of the art in multi-style multi-class portfolio management. It analyses the risks and return drivers and the conditional performance of the various alternative asset classes and strategies. It shows how to deal with non-gaussian returns, illiquid assets, and flawed data and to account for extreme risks in multistyle multi-class portfolio optimisation. It presents qualitative techniques to control asset-class exposures and manage liquidity, valuation, and counterparty risks, and surveys quantitative tools for portfolio-wide risk management. õ The second day of the seminar presents novel financial engineering techniques to optimise risk budgeting when alternative assets are added to institutional portfolios. It shows how to use alternative investments to improve risk budgets in asset management and liability driven investment (LDI) programmes and design new costefficient forms of inflation-hedging portfolios. It discusses quantitative techniques to maximise the diversification benefits of alternative assets and presents dynamic strategies for optimal blending of traditional and alternative beta, and optimal substitution of traditional classes. õ The final day of the seminar explores new frontiers in alternative investments. It assesses the potential of volatility as an asset class looking at its diversification and downside equity risk hedging properties and reviews volatility products and strategies. It explores green investing as an investment theme, analyses the risk/return profiles of green investment opportunities, and provides advice on how to allocate assets to green investing. It ends with a discussion of best-in-class techniques for extreme risk management. õ Presented in a highly accessible manner by a team of instructors with established reputations for bringing together academic expertise and industry experience, the seminar combines exploration of innovative models, concepts, and themes, presentation of state-of-the-art practical tools, and examination of best industry practices. A highly entertaining and educational hands on experience - very suited for practical applications Christoph Roos, CFA Member of the Board, BNP Paribas SA Pension Fund, Switzerland Past participant 3

4 Key Learning Benefits õ Understand the risks, return drivers, and conditional return characteristics of hedge funds, commodities, private equity, real estate, and emerging alternative assets. õ Find out how to build resilient multi-style multi-class portfolios. Address data limitations and deal with illiquidity, non-normality, and extreme risks to optimise multi-style multi-class portfolio construction. Use quantitative and qualitative techniques to manage class exposure, to minimise the liquidity, valuation, and counterparty risks of alternative investments, and to implement portfolio-wide risk management. õ Examine green investing as a super investment theme, study the risk/return profiles of green investment opportunities available in the various classes, review the possible organisations for allocating assets to green investing, and learn to determine the optimal allocation. õ Review best industry practices in the fields of extreme risk management. Recognise the nature of extreme risks in fund of funds structures and analyse the efficiency and tractability of the various tail-risk hedging strategies. õ Learn to use alternative investments to improve the risk budgets in asset management and LDI programmes. Review the inflation-hedging properties of traditional asset classes and alternative investments and use alternative assets to reduce the cost of inflation protection and hedge extreme inflation risks. Select alternative investments to optimise diversification within multi-style multi-class portfolios and design optimal diversifiers for equity and bond portfolios. Implement dynamic risk-controlled strategies for optimal substitution of traditional factor exposures and design of open-ended investment solutions with alternative assets. õ Explore the potential of volatility for portfolio diversification and hedging of downside equity risk. Survey volatility products and strategies and assess their relevance for strategic and tactical asset allocation. 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 and risk management policies, and for sell-side practitioners who develop new asset management and ALM solutions for investors. It is especially relevant to those who need to optimise the construction and management of alternative and multi-style multi-class solutions or examine the means as well as the benefits of making alternative classes and strategies an integral part of portfolios. The seminar should be of particular interest to practitioners with the following functions and from the following types of institutions: Functions Chief executive officers; Managing directors Chief investment officers; Directors of investment Chief risk officers Heads of asset allocation; Heads of investment strategy; Heads of ALM Heads of multimanagement Heads of investment solutions; Heads of structuring; Heads of financial services Portfolio managers Fund of funds managers Risk managers Senior analysts; Senior investment officers Senior investment advisers; Senior consultants Senior research officers Institutions Asset management companies Consultancies Insurance and reinsurance companies Investment banks Pension funds, Endowments, and foundations Private banks Research firms Sovereign wealth funds 5

6 Seminar Instructors François-Serge Lhabitant, PhD François-Serge Lhabitant is Affiliated Professor of Finance at EDHEC Business School and a member of EDHEC-Risk Institute, and Chief Investment Officer at Kedge Capital. François-Serge is responsible for the investment management of the Kedge Capital Funds and investment mandates operated by the Kedge Group. Before joining Kedge, he was a senior executive at UBP where he was in charge of the quantitative analysis and the management of dedicated hedge fund portfolios. Prior to that, he was a director at UBS Private Banking Division and Global Asset Management. His research has been published in refereed academic and practitioner journals such as the Journal of Alternative Investments, European Finance Review, and the Journal of Risk Finance. He is a member of the Scientific Committee of the AMF (the French financial markets regulatory body) and of the AIMA Investor Steering Committee, and he contributes to the International Association of Financial Engineers and the Professional Risk Managers International Association. François-Serge has written several bestsellers on hedge funds and co-edited books on commodities, hedge funds, and stock market liquidity. His latest reference text is the Handbook of Hedge Funds (Wiley Finance). He is a seasoned keynote speaker at top industry events. He holds graduate degrees in engineering, banking, and finance and a PhD in finance from the University of Lausanne. 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 and practitioner journals, including Management Science, Review of Financial Studies, European Financial Management, Financial Analysts Journal, and Risk. 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. Latest Books and Chapters from the Instructors François-Serge Lhabitant has created the fundamental guide to hedge fund investments. It covers a lot of ground and can truly serve as an encyclopaedia for entry-level investors as well as those who would like to delve a little deeper into specific themes. It also includes information on legal environments as well as operational aspects, which other recent publications are clearly lacking. Barbara Rupf Bee, Global Head of Institutional Sales, HSBC Investments The authors have produced a work of the very highest quality. As focused as it is comprehensive, this is a superb contribution to the literature. Moorad Choudhry, Head of Treasury, Europe Arab Bank and Senior Fellow, Centre for Mathematical Trading and Finance, CASS Business School 6

7 Peter Carr, PhD Peter Carr is Head of Quantitative Financial Research at Bloomberg LP, where his group is responsible for all facets of the business operation relating to modelling and analytics. Peter is also Director of the MSc Mathematics in Finance at the New York University Courant Institute. Before joining Bloomberg in 2003, he headed equity derivative research groups for six years at Bank of America Securities and at Morgan Stanley. Before joining the Courant Institute in 2001, he worked for four years as Adjunct Professor at Columbia University. Before moving to industry, he served as Assistant Professor of Finance at Cornell University for eight years. He has published extensively in leading academic and practitioner journals, including the Journal of Finance, the Journal of Financial Economics, Review of Financial Studies, the Journal of Derivatives, and Risk. He also serves as Associate Editor for nine scientific journals related to mathematical finance and derivatives. He is credited for co-inventing the variance gamma model, inventing static and semi-static hedging of exotic options, and popularising volatility products. He has received numerous distinctions for his work, including the Institute of Advanced Studies Medal for Science (2008), Wilmott Magazine s award for Cutting Edge Research (2004), and Risk Magazine s Quant of the Year award (2003). He is a frequent speaker at both practitioner and academic conferences. He holds an MBA from the University of Toronto and a PhD in finance from UCLA. Russel Read, PhD, CFA Russell Read is Senior Managing Partner of C Change Investments, a private equity firm investing in companies that address resource limits in energy, water, food, air and materials. Before founding C Change Investments in 2008, he served as Chief Investment Officer for the California Public Employees Retirement System (CalPERS), America s largest pension fund. Prior to that, he was the Deputy Chief Investment Officer of Deutsche Asset Management. During his tenure at CalPERS, he redirected the portfolio toward international and natural resources opportunities, introduced its commodities and infrastructure investment programmes, re-established and enhanced its forestland investment programme, and established its environmental investment initiative as the leader among institutional investors. Russell is also a founding member of the P8 Group, which brings together senior officials from the world s largest public pension and sovereign investment funds to develop actions relating to global issues and particularly climate change. He has provided testimony to institutional investors, United States federal legislators and regulators, the United States Treasury, and the United Nations on how to invest effectively while protecting and enhancing the environment. He holds an MBA from the University of Chicago, a Master of Arts in economics and a PhD in political economy, both from Stanford University. He is also a Chartered Financial Analyst, a Chartered Life Underwriter, and a Chartered Financial Consultant. Etienne Rouzeau, PhD Etienne Rouzeau is a Director and the Head of Allocation and Risks with Allianz Alternative Asset Management (AAAm), the fund of hedge fund operation of Allianz Global Investors. Etienne s department is responsible for assessing the risk management processes implemented by hedge fund managers, optimising fund of fund construction by aligning bottom-up fund choices with top-down strategic allocation, and making sure that funds deliver the desired performance while respecting their risk budgets. Before joining AAAm in 2006, Etienne supervised the structured products and alternative investments businesses of Natexis Asset Management. Prior to that, he was an Associate Professor of Finance at EDHEC Business School. Etienne has published research work in Finance and frequently presents at top industry conferences. He holds graduate degrees in business administration and applied probability as well as a PhD in finance from University of Paris Sorbonne. 7

8 Multi-Style Multi-Class Portfolio Construction Day One Seminar contents: understanding the risks and return dynamics of the various alternative classes and strategies; measuring the linear and nonlinear factor exposures of traditional and alternative investments; addressing data limitations, autocorrelation, and non-normality; managing asset class exposure; using tools for the operational management of liquidity, valuation, and counter-party risk; measuring extreme risk and accounting for it in portfolio optimisation. Risk and return drivers of alternative investments õ Understanding alternative classes and alternative strategies Commodities Private equity Real estate Hedge funds Emerging alternative assets: infrastructure, art, etc. õ Comprehensive factor model for alternative and traditional classes and sub-classes Linear and non-linear exposure to risk factors a class by class analysis The conditional performance of alternative investments economic conditions under which alternatives perform well/poorly Diversification and hedging potential: mapping with respect to factors impacting return on traditional asset classes Portfolio construction and risk management õ Dealing with data limitations, illiquid assets, and non-gaussian returns Issues with alternative investment data: low-frequency, biases in databases, etc. Evidence of stale prices and methodologies for de-smoothing the return series Evidence of non-normality in alternative investment styles õ Managing the asset class exposure Capital calls versus upfront drawdown Dealing with returned capital Currency exposure and implicit leverage and deleverage õ Operational risk management Liquidity risk - Asset-liability liquidity matching - Subscriptions and redemptions, side pockets, and illiquid assets - Using credit lines and leverage versus using secondary markets - Side letters Valuation risks - Reviewing asset-pricing policies - Dealing with illiquid assets, complex products, and stale prices - Independent administration and net asset value production - The "too good to be true" risk Counterparty risk - Cash management - Asset custody and rehypothecation - Margins and collateralisation - Over-the-counter versus listed products - Financing and credit lines õ Portfolio-wide risk management Transparency issue: managed accounts versus funds, risk transparency versus asset transparency Diversification issue: the law of small numbers Risk measurement in alternative contexts: maximum drawdown, VaR and beyond VaR Portfolio construction with extreme risk measures versus volatility Portfolio rebalancing rules: buy and hold versus risk management 8

9 Financial Engineering and Alternative Investments Day Two Seminar contents: optimising the integration of alternative investments into asset management and ALM; measuring the inflation-hedging properties of traditional and alternative assets; reducing the cost of inflation protection and hedging extreme inflation risk with alternative investments; optimising the diversification potential of alternative investments; designing alternative diversifiers for equity and bond portfolios; implementing dynamic risk-controlled strategies to optimally displace traditional assets with alternative investments; designing multi-style multiclass open-ended investment solutions with liquidity, drawdown, and performance constraints. Alternatives in ALM õ Integrating alternative investments in an ALM context Organisation of ALM: LDI, liability-hedging portfolio versus performance-seeking portfolio Risk budgeting for LDI solutions: case without leverage (liability-driven benchmark) versus case with leverage (absolute return benchmark) Financial engineering with alternatives: optimising the risk budget by introducing alternatives in the performance-seeking and liability-matching portfolios Alternatives in the liability-hedging portfolio õ Inflation-hedging properties of alternatives Short-term inflation matching versus long-term inflation hedging: term structure of risk from an asset management and an ALM perspective Inflation hedging with alternatives: inflation-hedging properties of real estate and commodities Comparison with traditional asset classes: inflation-linked securities and stocks as possible ingredients in the liability-hedging portfolio õ New forms of inflation-hedging portfolios with alternative investments Inflation-hedging portfolios with enhanced performance: reducing the cost of inflation protection with the introduction of alternatives Impact on risk budgeting in ALM: reducing the required allocation to the performance-seeking portfolio by enhancing the liability-hedging portfolio Hedging extreme inflation risk: focusing on the left tail of the inflation risk distribution to further reduce the cost of inflation hedging Alternatives in the performance-seeking portfolio õ Alternatives for optimal diversification Alternative investment vehicle selection: exploring the co-moment beta approach Enhanced parameter estimation for alternatives: extending techniques for covariance matrix estimation to co-skewness and co-kurtosis matrices Optimal design of equity and bond portfolio diversifiers towards an optimal blend of traditional and alternative beta: an illustration using hedge fund strategies õ Alternatives for optimal substitution Dynamic risk-controlled strategies for optimal substitution towards an optimal replacement of traditional factor exposures with alternative factor exposures Dynamic core-satellite techniques with alternatives: meeting the challenge of liquidity Extending the dynamic core-satellite techniques to allow for the design of open-ended investment solutions mixing traditional and alternative beta: accounting for relative maximum drawdown and trailing performance constraints 9

10 New Frontiers in Alternative Asset Allocation Day Three Seminar contents: exploring volatility as an asset class, exploring green investing as an investment theme, and looking at best industry practices for extreme risk management volatility as a portfolio diversifier, volatility as a hedge against downside equity risk; understanding the characteristics, the pros and cons, and the pricing of first- to fourth-generation volatility products; reviewing systematic and tactical volatility strategies green investing as a super investment theme; risk/return profile of green investing by asset class; allocating assets to green investing understanding the pitfalls of traditional risk-measurement tools and using pragmatic approaches for extreme risk management; assessing and implementing tail-risk hedging strategies. 10 Volatility as an emerging asset class õ The case for volatility as an asset class What is an asset class? Class characteristics understanding the basic characteristics of volatility and the volatility risk premium Volatility as a portfolio diversifier Volatility as a hedge against the downside risk of equity Measuring the volatility exposure of traditional and alternative investments õ Volatility vehicles Options strategies: straddles, delta-hedged options, and their cons VIX and V2X futures: pros and cons Third-generation volatility products: pros and cons, and pricing of volatility, variance, gamma and correlation swaps Next-generation volatility products: conditional variance swap, options on variance, covariance swap, volatility of volatility concept õ Volatility strategies Defining a strategy and selecting volatility products according to market conditions Systematic investment strategies: shorting volatility indices, rolling variance swap positions Tactical volatility trades: correlation and dispersion trades Portfolio hedging: are volatility products better than plain vanilla puts? Green investing as an investment theme õ Green investing as a super-theme Opportunity Risks of missing out on the super-theme Implications for the capital markets over the coming decades õ Risk/return profile of green investing by asset class Public equities Fixed-Income Private equity, growth equity, and venture capital Real estate Infrastructure Commodities õ Allocating assets to green investing Should green investing be approached as a separate category or should it be made part of existing asset classes? Determining optimal allocations through time Expected returns as a function of allocation amounts Extreme risk management a fund of hedge funds case study õ Extreme risks in hedge funds Empirical evidence Extreme risks and long liquidity profile illustration through standard arbitrage strategies. õ Identifying extreme risks in hedge fund returns Limits of standard methodologies: scarcity of data, investment liquidity (heterogeneous risk horizons), asset liquidity (serial correlation of returns and estimation bias) Negative optionality and extreme risks: a naïve example, convexity estimation through non-linear factor analysis õ Hedging tail risks in a hedge fund portfolio Examples of short liquidity strategies: volatility strategies, credit strategies, and other strategies Hedging calibration and implementation Implications for the portfolio manager

11 About the Organisers Institute CFA Institute is the global, not-for-profit professional association that administers the Chartered Financial Analyst (CFA ) curriculum and examination programme worldwide, publishes research, conducts professionaldevelopment programmes, and sets voluntary, ethicsbased professional and performance-reporting standards for the investment industry. As part of its commitment to professional excellence, it has developed the Alternative Asset Allocation Seminar jointly with EDHEC-Risk Institute specifically for seniorlevel investment professionals. CFA Institute has more than 102,000 members in 134 countries and territories, including the world s 89,000 charterholders, as well as 136 affiliated professional societies in 57 countries and territories. CFA Institute is headquartered in Charlottesville, VA, USA, with regional headquarters in London, Hong Kong, Brussels, and New York. More information may be found at CFA Institute provides the investment community with an ideal platform to grow both in skills and relationships among peers. Markus Stadlmann, Managing Director, Harald Quandt Holding, Bad Homburg, Germany I have been following the research that EDHEC-Risk Institute has been doing during the past few years with great interest. The research programme is of high academic quality but is nevertheless always relevant and applicable from a practitioner s point of view. Erik Valtonen, Chief Investment Officer, AP3, Stockholm, Sweden EDHEC-Risk Institute is an offshoot of EDHEC Business School. One of the leading institutions in Europe, EDHEC Business School delivers degree courses to over 5,000 students and trains 5,500 professionals yearly through executive courses and research events. EDHEC-Risk Institute does world-class academic research and highlights its applications to the investment management industry. Its team of fortyeight researchers carries out its work in the context of six industry-sponsored programmes and ten corporateendowed research chairs focusing on asset allocation and risk management in the traditional and alternative investment universes. EDHEC-Risk Institute systematically seeks to validate the academic quality of its research through publications in leading scholarly journals and has a policy of optimising exchanges with the industry. It maintains a website ( devoted to asset management research for professionals, circulates a monthly newsletter to over 400,000 practitioners, conducts regular industry surveys and consultations, organises research conferences for the industry, and delivers executive education programmes to hundreds of institutions yearly. 11

12 Continuing Education Credits As a participant in the CFA Institute Approved-Provider Programme, EDHEC-Risk has determined that this programme qualifies for 21 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 Diary. Schedule A typical programme day lasts from 8:30 to 5:30 and is usually divided into lectures and application cases. The two class sessions in each half-day period are separated by thirty-minute refreshment breaks scheduled at 10:30 and 3:30. Lunch is served at 12:30. Venue The New York Helmsley Hotel is a world-class property nestled in the heart of Midtown Manhattan, within walking distance of Times Square, Grand Central Station and the United Nations, as well as the Theatre District and Rockefeller Center. The New York Helmsley Hotel, 212 East 42nd Street, New York City Tel: , Fax: Registration and Fee Information Fees New York Seminar Fee: USD8,000 CFA Institute Member Rate: USD6,000 Payments are accepted in euros or US dollars. VAT at a rate of 19.6% applies to sales to EU residents, to companies based in France, and to EU institutions without a VAT number. Non-EU residents/companies are not subject to VAT. Fees include instruction, teaching materials, refreshments at breaks, and lunches. Accommodation is not included. Billing and payment The fee is billed following registration and must be settled before the seminar begins. Payment can be made by credit card or wire transfer. 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. Further Information and Registration For further information, contact Mélanie Ruiz at: EXECeducation@edhec-risk.com or on: +33 (0) To register, visit: or send the completed registration form: by to: EXECeducation@edhec-risk.com by fax to: +33 (0) by post to: EDHEC-Risk Institute - Mélanie Ruiz Promenade des Anglais Nice Cedex 3 - France Institute CFA Institute 560 Ray C. Hunt Drive P.O. Box 3668 Charlottesville - VA United States of America Tel: Web: EDHEC-Risk Institute promenade des Anglais - BP Nice Cedex 3 - France Tel.: +33 (0) Fax: +33 (0) EXECeducation@edhec-risk.com Web: