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EDHEC Business School, founded in 1906 and among the select few institutions to have garnered international recognition through the triple crown of EQUIS, AACSB and AMBA accreditations, offers management education designed to meet the needs of companies. Its large range of international graduate programmes draws students from the world over. With its three campuses in Lille, Nice, and Paris, its 4,700 students, more than 25% of whom are from abroad, and its 100 full-time faculty, EDHEC has been ranked among the top European business schools for several years.
For the last four years, as part of its strategy for international excellence, EDHEC Business School has espoused an innovative research policy that takes into account the needs of companies and the market. Research at EDHEC is organised into four centres built on the expertise of the faculty.
EDHEC Business School is recognized as a centre of excellence for asset management and alternative investment research and several of its professors are regarded as international experts in the fields of asset management, fixed income securities, alternative investments and risk management. The aim of the EDHEC Risk and Asset Management Research Centre is to produce research that meets the most stringent academic standards and to facilitate corporate use of this research. In partnership with large financial institutions, the research centre brings together 35 researchers and implements six industry-sponsored programmes focusing on asset allocation and risk management in the traditional and alternative investment universes.
The choice of asset allocation
The EDHEC Risk and Asset Management
Research Centre structures all of its
research work around asset allocation.
This issue corresponds to a genuine
expectation from the market. On the one
hand, the prevailing stock market situation
in recent years has shown the limitations
of active management based solely on
stock picking as a source of performance.
On the other, the appearance of new asset
classes (hedge funds, private equity), with
risk profiles that are very different from
those of the traditional investment
universe, constitutes a new
opportunity in both conceptual and
operational terms. This strategic choice is
applied to all of the centre's research
programmes, whether they involve
proposing new methods of strategic
allocation, which integrate the alternative
class; measuring the performance of funds
while taking the tactical allocation
dimension of the alphas into account;
taking extreme risks into account in the
allocation; or studying the usefulness of
derivatives in constructing the portfolio. Percent of variation between funds
Source: EDHEC (2002) and Ibbotson, Kaplan (2000)
An applied research approach
In a desire to ensure that the research it carries out is truly applicable in practice, EDHEC has implemented a dual validation system for the work of the EDHEC Risk and Asset Management Research Centre. All research work must be part of a research programme, the relevance and goals of which have been validated from both an academic and a business viewpoint by the centre's advisory board.
This board is made up of both internationally recognised researchers and the centre's business partners. The management of the research programmes respects a rigorous validation process, which guarantees both the scientific quality and the operational usefulness of the programmes.
To date, the centre has implemented six research programmes:
• Asset allocation and alternative diversification
The research carried out focuses on the benefits, risks and integration
methods of the alternative class in asset allocation. From that
perspective, EDHEC is making a significant contribution to the research
conducted in the area of multi-style/multi-class portfolio construction.
• Performance and style analysis
The scientific goal of the research is to adapt the portfolio performance and style analysis models and methods to tactical allocation. The results of the research carried out by EDHEC thereby allow portfolio alphas to be measured not only for stock picking but also for style timing.
• Indices and benchmarking
This research programme has given rise to extensive research on the
subject of indices and benchmarks in both the hedge fund universe and
more traditional investment classes. Its main focus is on analysing the
quality of indices and the criteria for choosing indices for institutional
investors. EDHEC also proposes an original proprietary style index
construction methodology for both the traditional and alternative
universes. These indices are intended to be a response to the critiques
relating to the lack of representativeness of the style indices that are
available on the market. EDHEC was the first to launch composite hedge
fund strategy indices as early as 2003.
• Best execution and operational performance
This research programme deals with two topics: best execution and,
more generally, the issue of operational risk. The goal of the research
programme is to develop a complete framework for measuring
transaction costs: EBEX (“Estimated Best Execution”) but also to develop
the existing framework for specific situations (constrained orders, listed
derivatives, etc.). Research will also focus on risk-adjusted performance
measurement of execution strategies, analysis of market impact and
opportunity costs on listed derivatives order books, impact of explicit and
implicit transaction costs on portfolio performances and the impact of
market fragmentation resulting from MiFID on the quality of execution
in European listed securities markets.
• Asset allocation and derivatives
This research programme focuses on the usefulness of employing derivative instruments in the area of portfolio construction, whether it involves implementing active portfolio allocation or replicating indices. "Passive" replication of "active" hedge fund indices through portfolios of derivative instruments is a key area in the research carried out by EDHEC.
• ALM and asset management
The ALM and Asset Management research programme concentrates
on the application of recent research in the area of asset-liability
management for pension plans and insurance companies. The research
centre is working on the idea that improving asset management
techniques and particularly strategic allocation techniques has a
positive impact on the performance of Asset-Liability Management
programmes. The programme includes research on the benefits of
alternative investments, such as hedge funds, in long-term portfolio
management. Particular attention is given to the institutional context
of ALM and notably the integration of the impact of the IFRS standards
and the Solvency II directive project. It also aims to develop an ALM
approach addressing the particular needs, constraints and objectives of
the private banking clientele.
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Research for business
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To optimise exchanges between the academic and business worlds, the EDHEC Risk and Asset Management Research Centre maintains a website devoted to asset management research for the industry: www.edhec-risk.com, circulates a monthly newsletter to over 125,000 practitioners, conducts regular industry surveys and consultations, and organises annual conferences for the benefit of institutional investors and asset managers. |
The centre's activities have also given rise
to the business offshoots EDHEC
Investment Research and EDHEC Asset
Management Education:
| • EDHEC Investment Research supports institutional investors and asset managers in the implementation of the centre's research results and proposes asset allocation services in the context of a 'core-satellite' approach encompassing alternative investments. |
• EDHEC Asset Management Education helps investment professionals to upgrade their skills with advanced risk and asset management training across traditional and alternative classes. |
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