Investment Management in a Post-Crisis Landscape
Duration:
3 days
3 days
Location:
Prague, Mövenpick Hotel
Prague, Mövenpick Hotel
- The Global Crisis and the Changing Investment Assumptions
- Behavioral Finance and Investment Decision Making
- Formulation and Implementing an Investment Policy
- Strategic and Dynamic Asset Allocation
- Indexation and Core-Satellite Investing
- Managing Surplus Risk
- Liability Driven Investing
- Risk Budgeting and Portable Alpha
- Performance Measurement and Attribution Analysis
The purpose of this seminar is to give you a good and practical understanding of the state-of-the-art methods and tools for managing investment portfolios.
First, we discuss the challenges that face investors and investment managers in the aftermath of the global financial crisis. We discuss how these challenges can be taken into account when formulating investment objectives, policies and benchmarks. We also discuss the increasing impact of “behavioral” (non-rational) considerations in investment decision making, and we explain how this may lead markets becoming increasingly non-efficient, in violation of many of the assumptions behind “modern” portfolio theory.
We then take a closer look at the various traditional and alternative asset classes and their historical and prospective risk-return characteristics and we explain how funds can be allocated to these asset classes using a pragmatic “pyramid” approach as well as the optimization techniques suggested by modern and post-modern portfolio theories. We also explain how dynamic asset allocation strategies such as “constant mix”, “constant proportion portfolio insurance”, “contingent immunization” and “option-based portfolio insurance” can be implemented to obtain the optimal risk-return profile, or to manage surplus risk, under various market conditions.
Further, we explain how “indexation” used for “passive” management and how this strategy can be enhanced through a core/satellite approach that leaves room for active management strategies to add returns beyond the benchmark indices.
After that, we explain how to manage “surplus risk” and how the increasingly popular “Risk Budgeting” technique can be used to allocate “risk units” to optimize the risk-adjusted returns across managers and asset classes. We also explain the concept of “liability driven investing” and how derivates like futures, swaps and options are used to implement overlay programs to separately manage currency risk and other risks, to “port” alphas between markets, or to pursue “market-neutral”, “relative value” and other absolute return investment strategies.
Finally, we present and discuss methods for calculating, interpreting and evaluating portfolio performance on an absolute and on a risk-adjusted basis. We explain measures such as “Time-Weighted Return”, “Sharpe Ratio”, “Information Ratio”, and “Sortino Ratio”, and we discuss their suitability in measuring the performance of investments with different risk-return characteristics. We also explain and demonstrate how portfolio performance can be decomposed into contributions from allocation and selection decisions.
First, we discuss the challenges that face investors and investment managers in the aftermath of the global financial crisis. We discuss how these challenges can be taken into account when formulating investment objectives, policies and benchmarks. We also discuss the increasing impact of “behavioral” (non-rational) considerations in investment decision making, and we explain how this may lead markets becoming increasingly non-efficient, in violation of many of the assumptions behind “modern” portfolio theory.
We then take a closer look at the various traditional and alternative asset classes and their historical and prospective risk-return characteristics and we explain how funds can be allocated to these asset classes using a pragmatic “pyramid” approach as well as the optimization techniques suggested by modern and post-modern portfolio theories. We also explain how dynamic asset allocation strategies such as “constant mix”, “constant proportion portfolio insurance”, “contingent immunization” and “option-based portfolio insurance” can be implemented to obtain the optimal risk-return profile, or to manage surplus risk, under various market conditions.
Further, we explain how “indexation” used for “passive” management and how this strategy can be enhanced through a core/satellite approach that leaves room for active management strategies to add returns beyond the benchmark indices.
After that, we explain how to manage “surplus risk” and how the increasingly popular “Risk Budgeting” technique can be used to allocate “risk units” to optimize the risk-adjusted returns across managers and asset classes. We also explain the concept of “liability driven investing” and how derivates like futures, swaps and options are used to implement overlay programs to separately manage currency risk and other risks, to “port” alphas between markets, or to pursue “market-neutral”, “relative value” and other absolute return investment strategies.
Finally, we present and discuss methods for calculating, interpreting and evaluating portfolio performance on an absolute and on a risk-adjusted basis. We explain measures such as “Time-Weighted Return”, “Sharpe Ratio”, “Information Ratio”, and “Sortino Ratio”, and we discuss their suitability in measuring the performance of investments with different risk-return characteristics. We also explain and demonstrate how portfolio performance can be decomposed into contributions from allocation and selection decisions.
13.30 - 17.00 Strategic Asset Allocation and Portfolio Construction
- The Importance of Strategic Asset Allocation for Investment Performance
- ”Classic” Mean/Variance Optimization
- Shortfall-optimization
- Dealing with the Problems in the Classic Optimization Approach
- Time-varying volatility
- Illiquid investments
- Life cycle investing
- Bayesian Analysis and Portfolio Choice
- Resampling the Efficient Frontier
- Scenario Optimization
- The Black-Litterman Asset Allocation Model
- Exercises
Day Two
09.00 - 09.15 Recap
09.15 - 12.00 Dynamic Asset Allocation Strategies
- Objectives of Dynamic Asset Allocation
- Presentation and Evaluation of Dynamic Strategies
- Buy-and-hold
- Constant mix
- Constant proportion
- Option-based portfolio insurance
- Exercises
Indexation and Core-Satellite Investing
- Traditional Benchmark-relative Optimization
- Multiple Benchmark Optimization
- Tracking Error Efficiency vs. Mean-Variance Efficiency
- The Core-Satellite Approach to Investing
- Using Exchange Traded Funds (ETFs) in Cores-Satellite Investing
- Exercises
12.00 - 13.00 Lunch
13.00 - 16.30 Risk Budgeting, Surplus Risk Management and Liability Driven Investing
- Risk Allocation vs. Asset Allocation
- Active Risk vs. Passive Risk
- The Concept of “Portable Alpha”
- Constructing Optimal Portfolios under Risk Budgeting Constraints
- Defining objective function and constraints
- Maximizing the Information Ratio
- Surplus Risk Management
- Defining the Surplus in an ALM Framework
- Managing “Surplus-at-Risk”
- Liability Driven Investing (LDI)
- Exercises
Day Three
09.00 - 09.15 Recap
09.15 - 12.00 Using Derivatives for Asset Management
- Derivatives and their Usefulness in Asset Management
- Portfolio Management with Financial Futures
- Minimizing cash drag through synthetic indexation strategies
- Exploiting pricing inefficiencies in the cash/futures relationship
- “Tactical allocation” with futures
- “Sector-switching” with futures
- Portfolio Management with Options
- Securing minimum portfolio value
- Enhancing portfolio return/reducing risk through covered call strategies
- Management of shortfall-risk
- Using Swaps and “Structured Products”
- Using Derivatives to Create “Overlays” and “Absolute Return” Investments
- Exercises
12.00 - 13.00 Lunch
13.00 - 16.00 Performance Measurement and Attribution Analysis
- Why Measure Performance?
- Global Performance Reporting Standards
- Measuring return
- IRR, MWR, TWR
- Risk-Adjusted Performance Measures
- “Classic” (Jensen, Treynor, Sharpe)
- Measures of “shortfall” risk (LPM)
- Tracking error, information ratio
- Problems in Comparing Performance for between Absolute and Relative Investment Strategies
- Performance Attribution & Performance Reporting
- Exercises
Evaluation and Termination of the Seminar
