First Annual Advances in Asset Allocation Seminar

First Annual Advances in Asset Allocation SeminarLondon, 17-19 March 2008, The Dorchester

AssetManagementEducation

The Choice of Asset Allocation

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. Concurrently, the emergence of alternative asset classes with risk profiles that are very different from those of traditional investments is creating new opportunities for asset allocation in both conceptual and operational terms.

õ In the brave new world of investment management, astute investors dynamically allocate their funds between a core of passive vehicles and actively managed satellites. While the core of the portfolio closely tracks a benchmark that is representative of the investor’s strategic asset allocation, satellite funds make greater use of alternative betas and are given leeway to work as alpha-factories.

õ It is against this backdrop that the EDHEC Risk and Asset Management Research Centre has structured its work on asset allocation. Now regarded as the premier European centre for applied financial research, it plays a noted role in furthering asset allocation concepts and techniques and systematically highlighting their practical uses to the investment management industry.

õ Together with CFA Institute, the EDHEC Risk and Asset Management Research Centre is introducing an annual event that will take stock of the latest research advances and clarify the distinction between true innovation and mere marketing claims in emerging industry trends. CFA Institute is the world’s leading association of investment professionals and has been an unwavering promoter of higher industry standards for more than 60 years.

First Annual Advances in Asset Allocation Seminar - London, 17-19 March 2008, The Dorchester

Return variation between funds

45.5% - Tactical Asset Allocation 3.5% - Fees 40% - Strategic Asset Allocation 11% - Stock Picking

Source: EDHEC (2002) and Ibbotson, Kaplan (2000)

First Annual Advances in Asset Allocation Seminar

õ The inaugural Advances in Asset Allocation seminar is an intensive three-day course which will provide participants with an in-depth appreciation of the concepts and techniques that will shape the future of investment management as well as equip them with practical tools to improve asset allocation processes, implement novel investment management approaches, and develop new products.

õ The seminar addresses estimation issues and model shortcomings to optimise portfolio construction in a world that does not conform to the tenets of modern portfolio theory. It explores optimal risk budgeting techniques in the context of core-satellite investing and applies them to the design of long-only absolute return funds and new liability driven investment (LDI) solutions. It also looks at the potential of alternative classes and strategies as diversification and substitution vehicles and imparts research-based insights into the Fundamental Index® strategy, optimal benchmarks, and efficient indices.

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 balances exploration of new models and approaches with applications and case studies.



Key Learning Benefits

õ 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 non-normality, asymmetric risk preferences, parameter uncertainty and views in portfolio construction.

õ Use risk budgeting and dynamic core-satellite allocation to refine the investment management process and design new investment solutions: explore static and dynamic risk budgeting in a benchmark-relative and core-satellite framework, understand how to engineer portable alpha and portable beta strategies, learn to design long-only absolute return funds and dynamic LDI solutions.

õ Implement new forms of alternative diversification to optimise the risk-return characteristics of the core portfolio: assess the return enhancement and risk reduction advantages of adding alternative investments to asset management (AM) and asset-liability management (ALM) portfolios, find out how to select alternative investments to maximise diversification, learn to implement optimal substitution strategies.

õ Analyse the Fundamental Index® strategy, optimal benchmarks and efficient indices and assess their potential for asset allocation: understand the limitations of traditional stock market indices, assess the Fundamental Index® strategy, learn to design optimal benchmarks, discover efficient indices.

FunctionsChief investment officer/Director of investmentsHead of asset allocationHead of new product development/ structured products/institutional solutionsHead of researchPortfolio/Fund managerSenior advisor/consultantSenior investment officer

InstitutionsAsset management companiesConsultanciesFamily officesInsurance companiesInvestment banksPension funds, endowments and foundationsPrivate banks

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. It should be of particular interest to practitioners with the following functions and from the following types of institutions.


Praise for Seminar Faculty’s Latest Books “Dr Scherer has written a

book that bridges the gap between classical MPT theory and the practical application of MPT portfolio construction techniques. It is highly recommended to the professional and academic communities.”

Stefan Hartmann, Global Head of Quantitative Analysis, ABN AMRO

“A wonderful step forward in portfolio management texts! The material is well laid out, up-to-date, and strikes a welcome balance between presenting the academic background for topics and providing a good feel for current industry practice.”

Terry Marsh, President and CEO, Quantal International and Emeritus Professor of Finance, University of California, Berkeley

“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 at KBC Financial Products and Senior Fellow, Centre for Mathematical Trading and Finance, CASS Business School

Noël Amenc is Professor of Finance and Dean of Research at EDHEC Business School and Director of the EDHEC Risk and Asset Management Research Centre.

Before joining EDHEC Business School full-time, Noël was Head of Research with Misys Asset Management Systems. Prior to this, he was the president of SIP SA, a portfolio management software company he founded, developed and sold.

Noël has conducted research in the fields of quantitative asset management, portfolio performance analysis, and asset allocation and published numerous articles in academic and practitioner journals such as Journal of Portfolio Management, Journal of Performance Measurement, Journal of Asset Management, and Financial Analysts Journal. He has co-authored four books on quantitative equity management, portfolio management, performance analysis, and hedge funds including the notable Portfolio Theory and Performance Analysis (Wiley Finance). Noël is an Associate Editor of the Journal of Alternative Investments and a member of the scientific advisory council of the AMF, the French financial markets authority. He holds graduate degrees in economics, finance and management and a PhD in finance.

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Lionel Martellini is Professor of Finance at EDHEC Business School and Scientific Director of the EDHEC Risk and Asset Management Research Centre.

Lionel has served as a consultant for various institutional investors, investment banks, and asset management firms both in Europe and in the United States on questions related to risk management, alternative investment strategies, and asset allocation decisions in the absence and in the presence of liability constraints and performance benchmarks. 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.

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Bernd Scherer is Managing Director and Global Head of Quantitative Structured Products at Morgan Stanley (London).

He was previously in charge of Quantitative Research and Portfolio Engineering at Deutsche Asset Management (New York). Bernd is widely regarded as an expert on asset valuation, portfolio construction, strategic asset allocation and asset liability modelling.He is the author of four books on mathematical modelling of portfolio construction and risk management including the bestselling Portfolio Construction and Risk Budgeting (Risk Books) and has published over 50 articles in academic and practitioner journals such as Financial Analysts Journal, Journal of Portfolio Management, Risk, Journal of Investment Management and Journal of Asset Management.

Bernd serves as adjunct professor at several universities worldwide and is a much sought-after speaker in industry conferences. He holds graduate degrees in economics and business administration as well a PhD from the University of Giessen.

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Seminar Faculty

Day

One


Improving Portfolio Construction in a Non-Markowitz World Bridging the Gap between Modern Portfolio Theory and Portfolio Construction Objectives: understanding when and why modern portfolio theory fails in the real world, making covariance matrix estimation manageable and improving parameter estimates, implementing alternative portfolio models integrating non-normality risks, parameter uncertainty, and realistic risk preferences, using Bayesian analysis in portfolio construction. Short application cases are used throughout the day to help participants synthesise concepts and master techniques.

From portfolio theory to portfolio construction—limits of the Markowitz modelõ Feasibility issues: Markowitz optimisation as a formidable econometric problem yielding noisy and unstable results.

õ Relevance issues: how theoretical assumptions about investor behaviour and return distributions compare to empirical facts; how differences affect portfolio construction; Markowitz portfolios in the asset management and ALM contexts and why they are sub-optimal.

Implementing and improving parameter estimationõ Covariance matrix estimation and state-of-the art factor models: reducing dimensionality and estimating the covariance matrix with explicit-, implicit-, and explicit/implicit factor models.

õ Advanced techniques to address autocorrelation: de-smoothing the returns of illiquid sectors and asset classes (small caps, real estate, private equity, hedge funds); conditional estimation of parameters with autoregressive conditional heteroskedasticity and state-dependent models.

õ Dealing with low-frequency and low-density data: improving estimation with portfolio resampling.

Dealing with non-normality risks and asymmetric risk preferencesõ Measures, statistical significance, and persistence of non-normality risks: recognising when non-normality matters and when it should be taken into account.

õ Partial moments and how they allow incorporation of deviations from normality in portfolio construction: partial moments as behaviour-motivated measures of risks; defining and measuring partial moments; avoiding error maximisation in estimation; portfolio optimisation using lower partial moments as risk measures.

õ Scenario optimisation as a tool to account for non-normality and parameter uncertainty: utility- and risk-based scenario optimisation; scenario generation. Examples include optimising with mean-absolute deviation, minimum regret, and conditional Value-at-Risk.

Using Bayesian analysis in portfolio construction õ Basics of Bayesian analysis; applying Bayesian analysis to combine historical estimates and non-sample views of varying reliability; the Black-Litterman model as a special case; using Bayesian analysis to extract the full information from time series of different lengths.

Advanced Risk Budgeting and Dynamic Core-Satellite Allocation

Risk Budgeting and the Core-Satellite FrameworkObjectives: understanding the risk budgeting approach in the asset-only and asset-liability environments, measuring and decomposing risk, realising the benefits of the core-satellite organisation for risk allocation, implementing portable alpha and portable beta strategies in the core-satellite framework. Short application cases are used throughout the module.

õ Risk management: asset vs. risk allocation, absolute vs. relative-return risk, asset vs. liability- relative risk budgeting.

õ Risk budgeting: measuring and decomposing risk; benefits of the core-satellite organisation (clarifying the sources of value added, optimising management fees and/or transaction costs, simplifying alpha selection and management); financial engineering and core-satellite architecture (beta management and portable betas, portable alpha, completeness portfolio).

Dynamic Core-Satellite Management and New Investment OfferingsObjectives: understanding how to use dynamic core-satellite investing to achieve dissymmetric management of the risk budget and implement absolute return strategies, developing dynamic strategies for the asset management and the ALM worlds. Short application exercises are complemented by two capstone cases helping participants to “put the pieces together” and honing their abilities to design and implement radical investment management innovations.

õ Dynamic core-satellite allocation: principles, derivation and implementation of the model.Illustrations include non-linear payoff management, asymmetric tracking error management, asymmetric de-correlation, and optimal substitution.

õ Asset management case study: designing long-only absolute return funds with dynamic core-satellite management.

õ Asset-liability management case study: developing dynamic liability-driven investment products.

New Forms of AlternativeDiversification, Indices and Benchmarks

New Forms of Alternative DiversificationObjectives: understanding the return enhancement and risk reduction benefits of alternative investments in long-only portfolios, asset management and ALM perspectives, alternative investments for optimal diversification, alternative strategies for optimal substitution.Short application exercises are complemented by two case studies helping participants to thoroughly understand how to apply optimal alternative diversification and substitution strategies.

õ Alternative investments in the core portfolio: return enhancement vs. risk reduction benefits; alternative investments as diversification and substitution vehicles; alternatives in asset management and ALM perspectives.

õ Optimal risk diversification: selecting alternative classes and strategies to maximise diversification; measuring and managing higher-moment benefits; recognising the challenges of beta management. Case study: designing optimal diversifiers for equity and bond portfolios.

õ Optimal substitution: Displacing traditional assets with alternative investments—an optimal use of beta sources, dynamic management of the alpha and beta risk budgets. Case study: optimal substitution strategy for long and long/short equity portfolios.

New Forms of Indices and BenchmarkObjectives: understanding the limitations of traditional stock market benchmarks and exploring alternative solutions; assessing the Fundamental Index® strategy, optimal benchmarks and efficient indices.Short application cases are used throughout the module.

õ The Fundamental Index® strategy: reviewing the rationale for non-cap-weighted indexing; understanding and assessing the RAFI® methodology; performing return-based style analysis of RAFI® portfolios in search of low-cost alternatives.

õ Optimal benchmarks: designing optimally diversified benchmarks with sector and style indices.

õ Efficient indices: introducing new forms of diversity-weighted indices (constant correlation and constant volatility approaches, stochastic portfolio, etc.).


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With 111 permanent professors and over 4,700 students, the EDHEC Group is one of the leading business schools in Europe. Founded in 1906, it has earned the triple crown of international academic accreditations (AACSB, EQUIS, AMBA).

The EDHEC Risk and Asset Management Research Centre conducts world-class academic research and highlights its applications to the investment management industry. The centre’s team of 35 researchers carries out five industry-sponsored programmes focusing on asset allocation and risk management in the traditional and alternative investment universes.

The centre systematically seeks to validate the academic quality of its research through publications in leading scholarly journals and implements a multifaceted policy to optimise exchanges with the industry. It maintains a website (www.edhec-risk.com) devoted to asset management research for professionals, circulates a monthly newsletter to over 125,000 practitioners, conducts regular industry surveys and consultations, organises research conferences for the industry, and delivers executive education programmes to hundreds of institutions yearly.

About the Organisers

CFA Institute is the global, not-for-profit professional association that administers the Chartered Financial Analyst (CFA) curriculum and examination program worldwide, publishes research, conducts professional-development programmes, and sets voluntary, ethics-based professional and performance-reporting standards for the investment industry.

As part of its commitment to professional excellence, it has developed the Advances in Asset Allocation Seminar jointly with EDHEC Business School specifically for senior-level investment professionals.

CFA Institute has more than 95,000 members in 133 countries and territories, including the world’s 82,000 charterholders, as well as 135 affiliated professional societies in 56 countries and territories.

CFA Institute is headquartered in Charlottesville, VA, USA, with regional headquarters in London, Hong Kong, and New York. More information may be found at www.cfainstitute.org.


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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, CPA, CAIAPresident and Executive Director, Investment Service, Nuveen Investments

By consistently delivering academic work with remarkable added value for the industry, the EDHEC Risk and Asset Management Research Centre has established itself as the premier European centre for

applied financial research.

Alain Dubois, Chairman, Lyxor Asset Management

I have been following the research that EDHEC-Risk 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


Registration and Fee Information

Fees (exc.VAT)Seminar Fee: €6,000CFA Institute Member/Candidate Rate: €5,000VAT 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 liable to VAT. Fees include instruction, teaching materials, refreshments at breaks, and lunches. Accommodation is not included.

Billing and paymentThe fee is billed following registration and must be settled before the programme 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 Asset Management Education 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 Informationand RegistrationFor further information, contact Mélanie Ruiz at: [email protected] or on: +33 (0) 493 187 819

To apply for registration, log on to:http://store.edhec-risk.com

or send the completed application form:by email to: [email protected]

by fax to: +33 (0) 493 184 554

by post to: Mélanie Ruiz EDHEC AM Education 393-400 Promenade des Anglais 06202 Nice Cedex 3 - France

Continuing Education CreditsEDHEC Asset Management Education is registered with CFA Institute as an Approved Provider of the Continuing Education Programme. This seminar qualifies for 20 CE credits under the guidelines of the CFA Institute Continuing Education Programme. Please see www.cfainstitute.org/ceprogram for more information.

ScheduleA typical programme day lasts from 8:30 to 18:00 and is usually divided into lectures, case studies, and discussions. The two class sessions in each half-day period are separated by thirty-minute refreshment breaks scheduled at 10:30 and 15:30. Lunch is served at 12:30.

VenueOverlooking Hyde Park, The Dorchester is one of the world’s most sought after hotels.A luxury Mayfair hotel of great repute, it embodies the highest of traditional values and offers the latest technology.The Dorchester, Park Lane, London W1K 1QA, England, Tel: +44 (0) 207 629 8888, Fax: +44 (0) 207 629 8080

Fundamental Index® and RAFI® are trade marks of Research Affiliates, LLC.

First Annual Advances in Asset Allocation Seminar

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