EDHEC-Risk Institute Partner News

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The seminars will take place on 16 May in Paris, 17 May in Amsterdam and 18 May in London. Other Research Project News EDHEC-Risk Institute receives new support for three major research projects in Asia CME Group, Eurex and Société Générale Corporate & Investment Banking have signed partnership agreements with EDHEC Risk Institute–Asia and joined Amundi ETF, AXA Investment Managers, Deutsche Bank, and the Monetary Authority of Singapore in their support of EDHEC-Risk Institute’s newly established Asian platform. Chicago-based CME Group is sponsoring a research project entitled “Exploring the Commodity Futures Risk Premium: Implications for Asset Allocation and Regulation”. The research will build on previous work by Professor Joëlle Miffre which showed that a longshort dynamic approach based on the positions of hedgers and speculators and taking into account backwardation and contango was particularly apt at capturing the hedging pressure-based commodity futures risk premium. The project will explore the conditional correlations between the commodity risk premium and the returns of traditional assets over the long term to examine the diversification and extremerisk hedging potential of commodity futures as an asset class. It will also look at the possible influence of long-short speculators and long-only index traders on commodity markets to bring research-based facts to the current debate on the link between commodity market “financialisation” and price formation. The Institute will be conducting new research looking at “The Benefits of Volatility Derivatives in Equity Portfolio Management” with the support of Frankfurtbased Eurex. The research project’s emphasis will be on optimising access to the equity risk premium while controlling for downside risk. It will be co-managed by Professor Stoyan Stoyanov, Head of Research at EDHEC Risk Institute–Asia and Professor Lionel Martellini, Scientific Director of EDHEC-Risk Institute. that documented the relevance of structured products in institutional investment, the study will develop a framework for the comparative analysis of various forms of allocation to equities, including new structured forms of investment management, from an institutional asset allocation and risk management standpoint. The project will be led by Professor Stoyanov. 3. EDHEC-Risk Institute in the Press A selection of recent articles from the international business and specialised press featuring EDHEC-Risk Institute’s research may be found below. Risk management: • IPE (January 2011) Beta-zero fees “(…) Bernd Scherer tells Martin Steward that asset managers should take a good look at – and possibly hedge – the market risk embedded in their fees. How might that change the relationship with clients? (...) Many asset management companies went bust thanks to the financial crisis. No wonder many more are now taking a closer look at their key business risks. “Sometimes it takes a catalyst to create awareness – and P&L is an excellent teacher,” says Bernd Scherer, professor of finance at the EDHEC Business School and former Morgan Stanley managing director. Scherer’s attention is particularly focused on the pure market exposure risk that asset managers run via the assetbased fees that generate the bulk of their revenues. He feels this is massively overlooked by the industry, which assumes that its key risks are operational. But if an asset manager charges fees as a percentage of assets under management, and if those assets fall in line with the market, it stands to reason that revenues will fall in line with the market. (…)” Copyright IPE Société Générale Corporate & Investment Banking is supporting research into “Structured Equity Investment Strategies for Long-Term Asian Investors”. Building on earlier work by the Institute EDHEC-Risk Institute Partner News - Issue nº 5 - April 2011 - 4
Private equity: • Financial Times (17/01/2011) Big buy-out firms poor performers “(...) The world’s largest private equity groups deliver the worst returns for investors, according to analysis of 7,500 investments over the past 40 years. The research, conducted by the EDHEC-Risk Institute, an arm of France’s EDHEC Business School, found firms that hold a large number of investments simultaneously “underperform substantially”. The study, Giants at the Gate, also found returns from private equity investment in emerging markets are significantly below those in developed markets, potentially undermining the industry’s ongoing push into the fast-growing Asian markets. The report’s key finding was that “the scale of private equity firms is a significant and consistent driver of returns. Small investments outperform large.” EDHEC ranked the data in terms of the number of investments held simultaneously, a proxy for the size of a private equity firm. (...) EDHEC concluded, as private equity firms become bigger, communication becomes difficult and senior managers have less time for each portfolio company. “It is possible that the quality of the communication and the attention provided to [a given] investment may be lower, ultimately leading to poorer performance,” it said. (...)“ Copyright Financial Times Fund Management Regulation: (investor protection) objectives were talked about for (Ucits), but regulators haven’t put their words into action,” he says. “(Current) regulations have huge holes in their safety nets.” In the study, available in our research archive, EDHEC says making risks clearer to investors would force managers into becoming more accountable. Mr Sender says the current reporting requirements under the Ucits regime are not sufficient to keep investors well informed. (...)” Copyright Ignites Europe • Financial Times (30/01/2011) Insurers gear up for new charges “(...) New regulations governing the European insurance industry could lead to a wave of selling of corporate bonds and equities, commentators believe. (...) The Solvency II directive, which sets new requirements on capital adequacy and risk management for insurers, aims to change investment behaviour by imposing varying capital charges on assets. Equities will need to be backed by reserves of 30-40 per cent, while European sovereign debt is deemed risk free. (...) Samuel Sender of the EDHEC-Risk Institute added: “Corporate bonds will not be used really to hedge liabilities. If you are holding corporate bonds you are taking an extra risk.” (...) Mr Sender added: “Insurance companies invest in low risk hedge funds to diversify. If you have a higher capital charge, regulation almost prevents you from doing that. You will have a shift away from less risky investments.” (...)” Copyright Financial Times Fund Management • Ignites Europe (19/01/2011) Ucits framework riddled with danger: study “(...) The Ucits regime is riddled with dangerous holes that pose a safety risk to investors, says the author of a new study on the European fund industry. Ucits funds have become increasingly sophisticated over the past few years, and that fact has slipped the attention of EU policymakers, warns Samuel Sender, applied research manager at EDHEC-Risk Institute. The emergence of counterparty, liquidity and sub-custody risks have not been followed up with adequate rules to protect investors, Mr Sender believes. “A lot of • Financial Times (28/03/2011) Action needed to shield investors from Ucits risk Article by Samuel Sender, applied research manager at EDHEC-Risk Institute “(...) Non-financial risks have been increasing since Ucits investment funds were first set up, but European authorities and investment professionals failed to study the impact of these risks when they facilitated the evolution of the funds. In recent research conducted by EDHEC-Risk Institute as part of the “Risk and Regulation in the European Fund Management Industry” research chair in partnership with Caceis, EDHEC-Risk Institute Partner News - Issue nº 5 - April 2011 - 5
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