Turmoil in financial markets and the need for greater transparency has triggered a review of the $174 billion CalPERS’ existing governance and risk management framework, with a new ad hoc committee tasked with reviewing the risk management framework across the entire business.
AustralianSuper aims for beta returns after big cuts to active equities
The A$28billion (US$20 billion) AustralianSuper terminated several mandates with active equities managers last week and directed most of the freed-up capital to passive exposures bringing its passive management in equities to more than 50 per cent, in an effort to simplify its portfolio by trimming excess managers.
Refining portfolio construction when alphas and risk factors are misaligned
In this research insight MSCI Barra explores the mitigation of misaligned risk and alpha factors by modifying the optimisation process. Firstly it reviews how to decompose a set of alphas into two components – one that is related to risk model factors, and one that is not. Then it shows how penalising the residual alpha in portfolio optimisation may improve a portfolio’s exposures and ex-ante information ratio.
Embrace risk in asset allocation
Investors should be wary of “new paradigm” arguments, according to the latest research by consulting firm Wurts & Associates, which reminds investors the forces driving capital markets rarely change, but the position within market cycles is ever changing. Wurts & Associates’ philosophy on strategic asset allocation is that static portfolio structure is an ineffective means … Read more
Much to learn from New Mexico ERB’s alternative investments play
The New Mexico Educational Retirement Board’s aggressive move into alternatives has not been without hurdles. Chief investment officer, Bob Jacksha, spoke to Amanda White about the plan’s alternatives strategy, the bumps along the road and his expectations of the sector. Two years ago the $6.6 billion New Mexico Educational Retirement Board started looking for a … Read more
Alternative investments for institutional investors: risk budgeting techniques
This paper, produced by EDHEC Risk and Asset Management Research, presents an empirical analysis of the benefits of alternative forms of investment strategies from an asset-liability management perspective.
Using a vector error correction model that explicitly distinguishes between short-term and long-term dynamics in the joint distribution of asset returns and inflation, we identify the presence of long-term
cointegration relationships between the return on typical pension fund liabilities and the return of various traditional and alternative asset classes.
The results suggest that real estate and commodities have particularly attractive inflation-hedging properties over
long-horizons, which justify their introduction in pension funds’ liability-matching portfolios.
Overall, the results suggest that alternatives are very useful ingredients for institutional investors facing inflation-related liability constraints.
