EDHEC Risk and Asset Management Research Centre www.edhec-risk.com

EDHEC is one of the top five business schools in France and was ranked 7^th in the Financial Times Masters in Management Rankings 2006 owing to the high quality of its academic staff (over 100 permanent lecturers from France and abroad) and its privileged relationship with professionals that the school has been developing since it was established in 1906.

EDHEC Business School has decided to draw on its extensive knowledge of the professional environment and has therefore concentrated its research on themes that satisfy the needs of professionals. EDHEC is one of the few business schools in Europe to have received the triple international accreditation: AACSB (US-Global), Equis (Europe-Global) and AMBA (UK-Global).

EDHEC pursues an active research policy in the field of finance. Its "Risk and Asset Management Research Centre" carries out numerous research programmes in the areas of asset allocation and risk management in both the traditional and alternative investment universes.

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:

• Multi-style/multi-class allocation

This research programme has received the support of Misys Asset Management Systems, SG Asset Management and FIMAT. 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. This programme is part of a business partnership with the firm EuroPerformance (part of the Fininfo group).

• Indices and benchmarking

EDHEC carries out analyses of 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 representativity 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. The indices and benchmarking research programme is supported by AF2I, Euronext, BGI, BNP Paribas Asset Management and UBS Global Asset Management.

• Best execution and operational performance

This research programme focuses on the development of a complete framework for measuring transaction costs: EBEX ("Estimated Best Execution"); development of the existing framework for specific situations (constrained orders, listed derivatives, etc.); 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. The programme is supported by HSBC and Citi.

• Asset allocation and derivative instruments

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. This programme is supported by Eurex and Lyxor.

• ALM and asset management

This 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. This programme is sponsored by AXA IM and Pictet & Cie.

Research for business

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 75,000 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.