Inflation Sensitive Assets: Instruments and Strategies

547 Pages·2012·3.309 MB·English

by  Stefania Perrucci and Brice Benaben

The real impacts of inflation and its most In Inflation-Sensitive Assets: Instruments and In Inflation
extreme form – hyperinflation – are known Strategies, Stefania Perrucci and Brice Benaben fla
only too well: they erode value, unbalance blend insights and experiences from market tio
economies and destroy wealth. participants including investment bankers, n

asset and pension fund managers and central S
e Sensitive
In the wake of the financial crisis a huge bankers to guide the reader through this n
s
monetary overhang threatens the major emerging sector. itiv
developed economies. e

This book, for the first time, addresses the a
s
The iron laws of economics have no respect commodities and inflation markets together, se assets
for modern semantic niceties of “quantitative”, providing a holistic treatment from an inflation ts

“credit” or “monetary” easing: these policies all perspective.
portend of inflation that must work its way out
of the system. Inflation-Sensitive Assets provides the reader with
E
a deep understanding of the drivers of inflation, d
As a result markets have focused attention on the assets which can be used to hedge it and ite Instruments and Strategies
d
assets that protect the investor from loss of how investors can formulate strategies when
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purchasing power. managing assets and liabilities in an inflation- y

sensitive environment. S
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Inflation-sensitive assets – including f
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commodities, equities, infrastructure and real Designed for practitioners, the book includes n EdItEd by StEfanIa PErruccI
estate investments, and inflation-linked securities important academic contributions, and will be ia
and brIcE bEnabEn
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– have in fact become a new asset class. of interest to portfolio managers, risk managers, e
plan sponsors and researchers alike. rr
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Many institutional investors controlling trillions c
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of dollars’ worth of assets are allocating an “This book provides an essential resource for i
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increasing weight to the sector as an alternative investors, consultants and service providers n
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and complement to other traditional assets. keen to preserve wealth”
b
MIhIr WorAh, Managing Director, r
head of real return Portfolio Management, ice
PIMCo b
e
n
a
b
e
n
PEFC Certified
this book has been
produced entirely from
sustainable papers that
are accredited as PEfc
compliant.
www.pefc.org
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Inflation-Sensitive Assets
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Inflation-Sensitive Assets
Instruments and Strategies
Edited by Stefania Perrucci and Brice Bénaben
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PublishedbyRiskBooks,aDivisionofIncisiveMediaInvestmentsLtd
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Tothememoryofourfathers,BernardBénabenandPietroPerrucci
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Contents
AbouttheEditors ix
AbouttheAuthors xi
Foreword xix
MihirWorah
PIMCO
Acknowledgements xxi
PARTI INTRODUCTION:MARKETSANDINSTRUMENTS 1
1 Inflation-SensitiveAssets 3
StefaniaA.Perrucci
NewSkyCapital
2 InvestableCommodityIndexesandInflation:ABriefHistory 13
BobGreer
PIMCO
3 Commodities,InflationandGrowth:ImplicationsforPolicy
andInvestments 25
RicDeverell,KamalNaqvi
CreditSuisse
4 InflationandRealEstateInvestments 43
BradCase;SusanM.Wachter
NationalAssociationofRealEstateInvestmentTrusts
(NAREIT);TheWhartonSchool,UniversityofPennsylvania
5 InfrastructureAssetsandInflation 69
GeraldStack,DennisEagar,KrisWebster
MagellanGroup
6 EquityInvestmentsandInflation 79
StevenBregman,MurrayStahl
HorizonKineticsLLC
7 Inflation-LinkedMarkets 103
GangHu;StefaniaPerrucci
CreditSuisse;NewSkyCapital
8 UnderstandingandTradingInflationSwapsandOptions 137
BriceBénaben;HervéCros;FranckTriolaire
NewSkyCapital;BNPParibas;MorganStanley
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INFLATION-SENSITIVEASSETS
PARTII RESEARCHANDMACROPERSPECTIVE 177
9 TheRoleofModelsinModernMonetaryPolicy 179
StefaniaA.PerrucciandDavidVavra
NewSkyCapital;OGResearch
10 TermStructureofInterestRatesandExpectedInflation 209
OlesyaV.Grishchenko;Jing-ZhiHuang
FederalReserveBoard;PennStateUniversity
11 MonetaryPolicy,InflationandCommodityPrices 255
FrankBrowne,DavidCronin
CentralBankofIreland
12 InflationandAssetPrices 277
JohnA.Tatom
IndianaStateUniversity
13 InflationandEquityReturns 299
JeffreyOxman
UniversityofStThomas
14 InflationHedgingthroughAssetandSectorRotation 325
AlexanderAttié,ShaunRoache
InternationalMonetaryFund
PARTIII PRACTICALINSIGHTSFROMMARKETPARTICIPANTS 349
15 PracticalModelsforInflationForecasting 351
NicJohnson
PIMCO
16 ProtectingInsurancePortfoliosfromInflation 369
KenGriffinandEdwardY.Yao
ConningAssetManagement
17 Inflation,PensionsandLiability-DrivenInvestmentSolutions 389
MarkusAakko
PIMCO
18 Ultra-High-Net-WorthInvestorsandtheRealAssetValueChain 423
IanBarnard
CapitalGenerationPartners
19 InflationMarkets:APortfolioManager’sPerspective 435
StefaniaA.Perrucci
NewSkyCapital
20 InflationIndexationandProductsinEmergingMarkets 479
BriceBénaben,StefaniaA.Perrucci
NewSkyCapital
Index 507
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About the Editors
Stefania Perrucci is the founder and CEO of New Sky Capital, an
independentinvestmentandadvisoryfirmwithofficesinPhiladel-
phiaandLondon.Shehas15yearsofinvestmentexperience,span-
ningbothtraditionalandalternativeassetclasses.Beforefounding
NewSky,shewasaportfoliomanageratMorganStanley,whereshe
consistentlyrankedamongthetop-quartileperformers.Herflagship
fundwastherecipientofaLipperFundsAwardin2008(basedontop
three-yeartrailingperformance).BeforejoiningMorganStanley,she
wasariskmanagementspecialistattheIFC,partoftheWorldBank
Group. Stefania has established herself as a recognised thought-
leaderandindependent-mindedinvestor.In2006,shewasoneofthe
fewbuy-sidevoicesadvocatingalonginsurancepositiontoprotect
against the effects of an imminent collapse in house prices. She is
theauthorofseveralproprietarymodels,withonepatentawarded
and another pending. She has published cutting-edge research on
severalmarkettopics,andspeaksregularlyatindustryconferences
aroundtheglobe.SheistheeditorandauthorofMortgageandReal
EstateFinance.StefaniareceivedherPhDintheoreticalphysicsfrom
the University of Virginia, and a Laurea Summa Cum Laude from
the University of Modena, Italy. She has held academic positions
at universities in both the US and Europe, receiving more than a
dozenawards,inrecognitionofoutstandingacademicandteaching
achievement.
BriceBénabenisamanagingdirectorandheadofinflationresearch
atNewSkyCapital.Hehas15yearsofinvestmentexperience.Pre-
viously,heheldpositionsasmanagingdirectorandglobalheadof
propertyderivativesandinflationtradingatDeutscheBank,deputy
head of inflation at Citibank, head of inflation structuring atABN
AMRO,headoffixedincomeandportfoliostrategyatCreditAgri-
coleIndosuezandportfoliomanger/traderattheIFC(WorldBank
Group). Brice is the editor and author of Inflation-Linked Products,
co-editorandauthorofInflationRisksandProducts,andco-authored
“RealEstateIndexesandPropertyDerivativeMarkets”inMortgage
andRealEstateFinance.HeisagraduateoftheUniversityofOxford,
wherehestudiedappliedmathematics.
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