EDHEC-Risk Institute Partner News

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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
The full FTfm article may be consulted here. CACEIS “Risk and Regulation in the European Fund Management Industry” research chair The FTfm edition of March 28 reports the latest findings of the CACEIS “Risk and Regulation in the European Fund Management Industry” research chair in an article authored by Samuel Sender, applied research manager at EDHEC-Risk Institute. The article discusses the recent research conducted to examine how non-financial risks and failures have impacted the regulatory agenda in Europe and traced the management of liquidity, counterparty, compliance, misinformation, and other non-financial risks in the fund industry. This research gave rise to a paper entitled, “The European Fund Management Industry Needs a Better Grasp of Non-Financial Risks”. The full FTfm article may be consulted here. A number of seminars to take place throughout Europe in April and May to present the latest results of the Ortec Finance, Rothschild & Cie, and AXA Investment Managers research chairs: • Exclusive presentation of the results of an EDHEC- Risk survey of European private wealth management practices organised in London with Ortec Finance As part of the Ortec Finance research chair on “Private Asset-Liability Management”, an exclusive seminar jointly organised by Ortec Finance and EDHEC- Risk Institute took place in London on April 20. The presentation, entitled “The Evolution of Value-Added in Private Wealth Management and the Asset-Liability Management Approach”, conducted by Felix Goltz, Head of Applied Research and Noël Amenc, Director, at EDHEC-Risk Institute, presented the results of the EDHEC-Risk European Private Wealth Management Survey and provided a unique opportunity to discuss the challenges in private wealth management and take a detailed look at the landscape of private wealth management in Europe. At the event, Ronald Janssen, Managing Director Private Wealth Management at Ortec Finance also presented the Private ALM solutions developed by his company for different client segments ranging from retail to private banks. • Special presentations to be held in Paris and London in May as part of the Rothschild & Cie research chair on “The Case for Inflation-Linked Corporate Bonds: Issuers’ and Investors’ Perspectives“ At a special presentation entitled “How to Improve Corporate Debt Programmes with Inflation Linked Corporate Bonds” organised in Paris on 3 May and in London on 4 May, Lionel Martellini, Scientific Director at EDHEC-Risk Institute, will detail the recent EDHEC- Risk Institute research in this field and examine the following topics: - On the relevance of debt management - A simplified approach to debt management decisions - Introducing inflation-linked bonds - Numerical estimates of debt management benefits - Reconciling the needs of issuers and investors The main contribution of this research is to provide a joint quantitative analysis of capital-structure decisions and debt structure decisions within a standard continuous-time model in the presence of interest-rate and inflation risks. The principal findings are that debt management has an impact on capital structure and that an optimal debt structure can facilitate substantial increases in firm value. The research finds that a number of corporations would benefit from issuing inflation-linked bonds, bonds usually associated with sovereign states. • Exclusive seminar on accounting and sponsor risks in corporate pension plans organised in London, Paris and Amsterdam in May as part of the AXA Investment Managers “Regulation and Institutional Investment“ research chair At the seminar entitled, “The Elephant in the Room: Accounting and Sponsor Risks in Corporate Pension Plans”, Samuel Sender, Applied Research Manager at EDHEC-Risk Institute, will present a major study conducted by EDHEC-Risk Institute analysing how pension funds and sponsors manage the main risks they face and how institutional constraints influence the investment strategy of sponsors and pension funds. Erwan Boscher, Head of Pension Solutions at AXA Investment Managers will also be making a presentation at the event on the topic of “Practical Insights into Pension Fund Regulation and Consequences for Investors”. EDHEC-Risk Institute Partner News - Issue nº 5 - April 2011 - 3
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