EDHEC-Risk Institute Partner News

2. Research Chairs
Currently eleven research chairs, associated with
EDHEC-Risk’s six research programmes exploring
interrelated aspects of asset allocation and risk
management, are managed by EDHEC-Risk Institute.
The research chairs involve close partnerships
with their financial sponsors and a commitment
from EDHEC-Risk to publishing related articles in
international academic journals as well as to releasing
the research results to the investment management
profession through wide distribution of practitioneroriented
publications and presentations at industry
conferences. A selection of news concerning individual
research chairs may be found below.
Current Research Chair News
New research chair on Solvency II Benchmarks
endowed by Russell Investments
EDHEC-Risk Institute will be conducting research
with the support of Russell Investments in order
to design new benchmarks for European insurance
companies that are representative of a dynamic
allocation strategy between bonds and equities. The
aim of the initiative is to enable all small- or mediumsized
European insurance companies which do not
have a full internal risk mitigation model to be able
to avail of an objective academic reference in order to
manage the risk of their equity investments.
First year research project for Ontario Teachers’
Pension Plan research chair underway
Work has started on the first year research project
of the Ontario Teachers’ Pension Plan “Advanced
Investment Solutions for Liability Hedging for
Inflation Risk“ research chair, under the supervision
of Bernd Scherer, Professor of finance at EDHEC
Business School and member of EDHEC-Risk Institute.
With $96.4 billion in net assets at December 31,
2009, the Ontario Teachers’ Pension Plan is the
largest single-profession pension plan in Canada.
An independent organisation, it invests the pension
fund’s assets and administers the pensions of 289,000
active and retired teachers in Ontario.
The theme of the first year research project is “Real
Assets for Liability Relative Investors”. Industry wide
pension funds all over the world tend to have made
generous inflation indexed pension promises in the
past. Given that real assets are often conjectured to
offer a reduction in riskiness relative to a purchasing
power metric, there is strong interest in the liability
hedging properties of real assets. The conventional
wisdom is that pension funds with real liabilities need
to invest in assets that are positively correlated
with inflation. As always, the conventional wisdom
is incomplete. Pension funds with real liabilities
need also to watch out for assets that are positively
correlated with changes in real yields.
The first year research will investigate the role of real
assets for investors with real liabilities. While inflation
and real rate sensitivities are both important and
subject to the study, the ultimate question is whether
real assets can help investors with real liabilities to
improve the efficiency of their portfolios. The research
will develop the necessary tools to investigate the role
of real assets for pension funds with real liabilities.
Latest findings from the Deutsche Bank and
CACEIS research chairs reported recently in the
Financial Times
• Deutsche Bank “Asset-Liability Management
Techniques for Sovereign Wealth Fund
Management“ research chair
In an article entitled “Sovereign wealth funds make
presence felt” published in the FTfm on February
21, Lionel Martellini, Scientific Director, and Vincent
Milhau, Senior Research Engineer, at EDHEC-Risk
Institute, discuss the results of recent research
conducted by EDHEC-Risk Institute as part of
the Deutsche Bank “Asset-Liability Management
Techniques for Sovereign Wealth Fund Management”
research chair, which suggest that it is desirable to
analyse the optimal investment policy of a sovereign
wealth fund in an asset-liability management
framework.
The paper on which the article is based, “Asset-
Liability Management Decisions for Sovereign
Wealth Funds”, proposes a formal analysis of the
optimal investment policy and risk management
practices of sovereign wealth funds, which can be
regarded as the extension to sovereign wealth funds
of the liability-driven investing paradigm recently
developed in the pension fund industry. This analysis
has important potential implications in terms of
the emergence of genuinely dedicated ALM and risk
management solutions for sovereign wealth funds.
EDHEC-Risk Institute Partner News - Issue nº 5 - April 2011 - 2