Advances in Asset Allocation Seminar - EDHEC-Riskdocs.edhec-risk.com/mrk/000000/AAA/LondonNOV2016.pdf · investors are showing unprecedented interest in asset ... õ The seminar is

Advances in Asset Allocation Seminar

London, 22-24 November 2016

Institute

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 welfare-improving 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 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 center for research in these fields, it plays a noted role in furthering asset allocation concepts and techniques, while systematically highlighting their practical uses to the investment management industry.

Advances in Asset Allocation Seminar — London, 22-24 November 2016

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The Choice of Asset Allocation and Risk Management


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õ The Advances in Asset Allocation Seminar is an intensive three-day course that will provide participants with an in-depthappreciation 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, which can be used to frame optimal decisions for the design of a well-diversified performance portfolio through an efficient harvesting of risk premia within and across asset classes. It discusses the limits of modern portfolio theory and presents solutions to address estimation issues. It includes a presentation of advanced techniques for measuring and managing portfolio diversification. It includes anapplication 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 long-term liabilities or consumption goals. 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 also explores the

interaction between the performance-seeking and liability-hedging components in investors’ portfolios. Furthermore, it concludes on the design of improved forms of target-date funds, consistent with academic prescriptions, and that strongly depart from current forms of implementation.

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 section of the seminar includes 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 and retirement solutions, the transposition of ALM techniques to private wealth management as well as the use of dynamic LDI strategies for corporate and state pension funds.

õ The seminar is presented in a highly accessible manner by aninstructor who combines both academic and industry experience.It strikes a balance between exploration of new models and a study of applications.

Advances in Asset Allocation Seminar


Key Learning Benefitsõ 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 asymmetric risk preferences, and parameter uncertainty in portfolio construction.

õ Understand optimal benchmark construction and its 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.

õ Understand state-of-the-art ALM and LDI: review the fundamentals of ALM and discover the latest developments; uncover the potential of ALM in private banking and understandthe specificities of goals-based investing for individual investors; incorporate the sponsor perspective in ALM and incorporate funding ratio constraints in LDI; and find out how to develop improved forms of target-date funds that extend beyond simpledeterministic schemes and exploit changes in market conditions.

õ Use dynamic beta management, risk budgeting, and dynamiccore−satellite allocation to refine investment management and risk management processes and design new investment 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 approachesto optimize regulatory constraints.

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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

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 cross-section of buy- and sell-side institutions from 34 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:


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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 mix of theoretical concepts and their incorporation to portfolio management.Carlos Veintemillas, Deputy CIO, Texas Education Agency, USA Past participant

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 ZealandPast participant

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.Past participant

Brilliant integration of best practice across wealth management and pension funds. The EDHEC seminar defines the new paradigm in balance sheet management (asset allocation), and challenges us all join the revolution.Jaco Van der Walt,Head of FirstRand Management Office, FirstRand Bank Limited, South AfricaPast participant


Lionel Martellini is Professor of Finance at EDHEC Business School and Director of EDHEC-Risk Institute.

Lionel has consulted on asset allocation, 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 sitson 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 businessadministration, economics, statistics and mathematics, as well as a PhD in finance from the Haas School of Business at UC Berkeley.

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Lionel does a great job of showing you how to apply cutting edge academic research in practice.Kyle Wynne, Abu Dhabi Investment AuthoritySenior Risk Specialist

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 Past participant

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neRisk diversification: Efficiently harvesting risk premia acrossand within asset classesSeminar contents: identifying paradigm shifts in the asset management industry, understanding when and why modern portfoliotheory fails in the real world, making covariance matrix estimation manageable and improving parameter estimates, implementingfactor investing and risk allocation, constructing well-diversified efficient benchmarks, and identifying alternative forms of indicesand benchmarks.

IntroductionParadigm shifts in the asset management industryõ 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 BenchmarksFrom Asset Allocation to Factor Allocation Decisionsõ 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-basedmeasures 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 diversificationto scientific diversification; assessing the out-of-sampleperformance of global minimum asset allocation variancebenchmarks, maximum Sharpe ratio asset allocationbenchmarks, equal risk parity asset allocation benchmarks.


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Constructing Efficient Asset Class Benchmarksõ 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.

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Advances in Asset Allocation Seminar — London, 22-24 November 2016Advances in Asset Allocation Seminar — London, 22-24 November 2016

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o Risk hedging: Efficiently securing investors’ long-term liabilities and goals Seminar contents: reviewing the latest advances in ALM and LDI; examining the inflation-hedging properties of traditional and alternative investments; designing new cost-efficient 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 AssetManagement to Asset−Liability ManagementImplementing state-of-the-art liabilityhedgingõ A brief history of ALM: cash flow matching, immunization; surplus optmization; fund separation theorem and LDI strategies; performance seeking portfolio vs. liability-matching portfolio; using derivatives to implement the liability-matching portfolio.

õ Beyond LDI: from fund separation theoremsto fund interaction theorems; performanceseeking portfolios with attractive liability-hedgingproperties and liability-hedging portfolios withattractive performance properties; reducing therequired allocation to the performance-seekingportfolio by enhancing the liability-hedgingportfolio; selecting asset classes on the basisof their portfolio properties versus standaloneproperties; trading-off diversification benefitsversus hedging benefits.

õ Case studies of LDI strategies: constructingbetter bond benchmarks from an ALM perspective;bond portfolios with duration constraints andimproved Sharpe ratios; constructing performancebenchmarks with improved hedging benefits;liability-friendly equity benchmarks based onselection and/or optimization procedures.

Accounting for the presence of long-termobjectives in portfolio constructionõ 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 mean-reverting 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 customization and robust implementation.

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Risk insurance: Efficiently generating upside potential withlimited downside risk Seminar contents: moving from static to dynamic beta management; optimizing risk budgeting within the core−satellite architecture; usingdynamic core−satellite investing to achieve dissymmetric management of the risk budget; blending active management and risk managementin a unified framework; designing new asset management offerings and novel LDI solutions.

Towards Efficient Risk Insurance—From Asset LiabilityManagement to Risk and Asset Liability ManagementFrom static to dynamic beta managementõ 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 newapproaches for improved investment managementofferings õ Using risk budgets as ingredients in the design of the optimal portfolio strategy; implementing martingale techniques in optimization; taking into account mean reversion in equity returns within the context of a risk– controlled strategy; incorporating maximum drawdown constraints in product design; minimizing the costs of downside protection and maximizing 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-orientedstrategies; 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 retirement solutions: defining retirement goals in terms of replacement income throughout the decumulaion phase; estimating the maximum amount of replacement income given initial wealth and future contributions; securing a minimum level of replacement income while generating high probabilities to achieve higher target levels; managing longevity risk in the decumulation phase; meeting the challenges of mass customization and scalability.


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Advances in Asset Allocation Seminar — London, 22-24 November 2016Advances in Asset Allocation Seminar — London, 22-24 November 2016

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Institute

Since 2001, EDHEC Business School has been pursuing an ambitious policy in terms of practically relevant academic 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 EDHEC-Risk Institute, which has developed an ambitious portfolio of research and educational initiatives in the domain of investment solutions for institutional and individual investors.

This institute now boasts a team of close to 50 permanent professors, engineers and support staff, as well as 37 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; Nice and Paris in France. 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 global conferences.

To ensure the distribution of its research to the industry, EDHEC-Risk also provides professionals with access to its

website, www.edhec-risk.com, which is entirely devoted to international risk and asset management research. The website, which has more than 70,000 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.

EDHEC-Risk Institute also has highly significant executive education activities for professionals.

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 asset-liability management for institutions and individuals, and with Yale School of Management to set up joint certified executive training courses in North America and Europe in the area of risk and investment management.

As part of its policy of transferring know-how to the industry, EDHEC-Risk Institute has set up ERI Scientific Beta. ERI Scientific Beta is an original initiative which aims to favour the adoption of the latest advances in smart beta design and implementation by the whole investment industry. Its academic origin provides the foundation for its strategy: offer, in the best economic conditions possible, the smart beta solutions that are most proven scientifically with full transparency of both the methods and the associated risks.

Fees and Billing InformationFeesStandard rate: EUR6,000Institutional Investor rate: EUR5,000Fees include instruction, documentation,refreshments at breaks, and lunch.Accommodation is not included.

Billing and paymentThe fee is billed upon registration and must be settledbefore the seminar begins. Payment can be made bycredit card or wire transfer. Invoicing will be in Euros. UK VAT at a rate of 20% applies to all sales.

Transfer or cancellationTransfer 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, please contact:[email protected] or +33 493 183 496

To register, visit:https://www.regonline.co.uk/AAA_November_2016

ScheduleA typical programme day lasts from 8:30am to 5:00pm and is usually divided into lectures and application cases. The two class sessions in each half-day period are separated by 30 minute refreshment breaks. Lunch is included.

VenueThe EDHEC Campus8th Floor, 10 Fleet Place, Ludgate, London EC4M 7RBTel.: +44 (0)207 871 6740

Institute

EDHEC-Risk Institute393 promenade des AnglaisBP 3116 - 06202 Nice Cedex 3 - FranceTel: +33 (0)4 93 18 78 24

EDHEC Risk Institute—Europe 10 Fleet Place, LudgateLondon EC4M 7RB - United KingdomTel: +44 207 871 6740

EDHEC Risk Institute—Asia1 George Street#07-02 - Singapore 049145Tel: +65 6438 0030

www.edhec-risk.com

EDHEC Risk Institute—France 16-18 rue du 4 septembre75002 Paris - FranceTel: +33 (0)1 53 32 76 30

https://www.regonline.co.uk/AAA_November_2016

mailto: [email protected]

Documents

Advances in Asset Allocation Seminar - EDHEC-Riskdocs.edhec-risk.com/mrk/000000/AAA/LondonNOV2016.pdf · investors are showing unprecedented interest in asset ... õ The seminar is