About EDHEC

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 12^th in the Financial Times Masters in Management Rankings 2005 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)

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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 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.

• Asset allocation and extreme risks
  
  This research programme relates to a significant concern for institutional investors and their managers – that of minimising extreme risks. It notably involves adapting the current tools for measuring extreme risks (VaR) and constructing portfolios (stochastic check) to the issue of the long-term allocation of pension funds. This programme has been designed in co-operation with Inria's Omega laboratory. This research programme also intends to cover other potential sources of extreme risks such as liquidity and operations. The objective is to allow for better measurement and modelling of such risks in order to take them into consideration as part of the portfolio allocation process.

• 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.

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In order to facilitate the dialogue between the academic and business worlds, the centre has recently undertaken four major initiatives:

• Opening of a web site that is entirely devoted to the activity of international research into asset management. www.edhec-risk.com is aimed at a public of professionals who wish to benefit from EDHEC's expertise and analyses in the field of applied portfolio management research such as detailed summaries, from a business perspective, of the latest academic research on risk and asset allocation as well as the latest industry news assessed in the light of the results of the EDHEC research programme. www.edhec-risk.com is also the official site for the EDHEC Indices.

• Launch of EDHEC-Risk Advisory, the consulting arm of the research centre focusing on risk management issues within the buy-side industry, and offering a wide range of services aimed at supporting fund managers and their service providers in the fields of operational risk, best execution, structured products, alternative investment due diligence and risk management system implementation.

• Launch of EDHEC Investment Research, in order to support institutional investors and asset managers in implementing the results of the EDHEC Risk and Asset Management Research Centre’s research. EDHEC Investment Research proposes asset allocation services in the context of a “core-satellite” approach encompassing alternative investments.

• Launch of EDHEC Alternative Investment Education, which is the exclusive official CAIA association course provider for Europe.

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