Asset Management and Institutional Investors

469 Pages·2016·7.299 MB·English

by  Ignazio Basile, Pierpaolo Ferrari (eds.)

Editors
Ignazio Basile · Pierpaolo Ferrari
Asset
Management
and
Institutional
Investors
Asset Management and Institutional Investors
ThiSisaFMBlankPage
Ignazio Basile • Pierpaolo Ferrari
Editors
Asset Management
and Institutional Investors
Foreword by Andrea Sironi
Editors
IgnazioBasile PierpaoloFerrari
DepartmentofEconomics DepartmentofEconomics
andManagement andManagement
UniversityofBrescia UniversityofBrescia
Brescia,Italy Brescia,Italy
ISBN978-3-319-32795-2 ISBN978-3-319-32796-9 (eBook)
DOI10.1007/978-3-319-32796-9
LibraryofCongressControlNumber:2016945976
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Foreword
Itisapleasureformetopresentthisbookdevotedtotheinvestmentmanagement
policy of institutional investors, which a group of friends and colleagues have
written with great dedication and expertise, providing a methodical and in-depth
perspectiveofamultifacetedtopicthatisincontinuousevolution.
Thebookiscomposedoffourparts.Thefirstoneanalysesthedifferenttypesof
institutional investors, institutions which, with different objectives, professionally
manage portfolios of financial and real assets on behalf of a wide variety of
individuals. The development factors and benefits for the financial system gener-
ated by institutional investors are identified, and a comparison is made at the
internationallevel.Thefirstpartgoesonwithanin-depthanalysisoftheeconomic,
technicalandregulatorycharacteristicsofthedifferenttypesofinvestmentfunds,
assuming the perspective of a European Union investor. Management strategies,
restrictionstoinvestmentpolicies,publicdocumentationandchargesofinvestment
funds are explored. This section also analyses other types of asset management
products which have a high rate of substitutability with investment funds and
representtheirnaturalcompetitors.
Thesecondpartofthebookidentifiesandinvestigatesthestagesoftheinvestment
portfoliomanagement,dividingtheinvestmentprocessintothefollowingstages:the
identification of the objectives and the constraints of the investment policy, the
formalisationoftheinvestmentstrategy,theimplementationofthefinancialstrategy,
theperiodicrebalancingoftheportfolioandtheassessmentofresultsandriskcontrol.
Giventheimportanceofstrategicassetallocationinexplainingtheexpostperformance
of any type of investment portfolio, this section provides an in-depth analysis of
assetallocationmethods,illustratingthedifferenttheoreticalandoperationalsolutions
availabletoinstitutionalinvestors.Thissectionfocusesontheconceptsandapplications
oftraditionalapproachestoassetallocation,basedonmean-varianceoptimisation,but
also deepens the new risk-based approaches for asset allocation, which eliminate
estimation risks associated with the traditional approaches. Finally, the second part
concludes with a presentation ofthe methods and instruments for portfolio selection
v
vi Foreword
available to institutional investors for a more aware identification of the “optimal
portfolio”,takingintoconsiderationmanagementobjectivesandconstraints.
Thethirdpartdescribesperformanceassessment,itsbreakdownandriskcontrol.
The first step in performance assessment is the calculation of return, with the
identification of the most appropriate measure among the different methods of
calculation available. Performance evaluation requires then the identification of
the risk of an investment portfolio, in its different forms of absolute, asymmetric
and relative risk, and the calculation of the related risk-adjusted performance
measures, which will enable to assess the efficiency of the asset manager with
respect to the benchmark, the competitors and the ex ante risk limits. When
comparing the performance of competitors, it is essential that homogenous peer
groupsbecreated,madeupofportfolioswiththesamemanagementapproach.To
thisend,themostcommonoperationalsolutionistocreateapeergroupbasedon
the investment style, by using a deductive approach founded on the so-called
returns-based style analysis. This section provides alternative methods and
utilisation rationales of style analysis. In the case of non-indexed portfolios, an
in-depth ex post performance assessment also requires the evaluation of the asset
managerintermsoftheabilitytorealiseeffectivestockpickingandmarkettiming
activities.Forthispurpose,thissectionpresentsthemostappropriateperformance
attributionmodelaimedtoshedlightonthosemanagementchoicesthatgenerated
the gap between the overall result of the portfolio and the benchmark, breaking
down relative performance into its determinants and attributing it to the various
factorsthatcontributedtoitsgeneration.
Finally,thefourthpartdealswiththesubjectofdiversificationtowardsalternative
assetclasses,identifyingthecommoncharacteristicsandtheirpossiblerolewithinthe
framework ofinvestment management policies. This section analyses hedge funds,
identifying their operational characteristics, management strategies, the regulatory
frameworkandthespecificperformanceassessmenttechniques.Thedistributionof
the hedge funds returns highlights some statistical anomalies that compromise the
validityofnormalityassumption,whichisanecessaryconditionfortheapplicationof
classicperformancemeasures.Thesectioncontinueswithacompleteandexhaustive
analysis of the other types of alternative investments: private equity, real estate,
commodities and currency overlay techniques. A common characteristic of these
alternative asset classes is to have returns that are often uncorrelated with those of
traditionalassetclasses,althoughthedirectionandintensityofthecorrelationvaries
greatlyovertimeandaccordingtothespecificcategoryofalternativeinvestment.
Ibelieveitisworthwhiletohighlightthreestrengthsthatenrichthisworkandmake
itaneasyreadingandofinteresttoawideaudience:First,anabundanceofup-to-date
dataandnumericalandgraphicillustrativetables.Thisisaveryimportantaspectthat
facilitatestheunderstandingofeventhemostcomplexconcepts.Second,theabilityto
analysefrontierthemesinrelationtoinvestmentmanagement,withoutunderratingthe
fundamentalconceptsthatlieatthebasisofthemostadvancedresearch.Thisfeature
makesthebookofvalueandofservicetoexperts,whoareinterestedincutting-edge
models and techniques, and also to those who are less experienced on the subject.
Lastly, thereisthemeticulousworkdonebytheeditors,who,thankstothelogical
Foreword vii
coherenceandsequenceofthesubjects,havesucceededinthedifficulttaskofmaking
a book written by different qualified authors comparable to a manual written by a
singleauthor.
Toconclude,initsthoroughandpreciseanalysisofallthesesubjects,thebook
edited by Ignazio Basile and Pierpaolo Ferrari is a useful and effective tool for
tacklingthetopicoftheinvestmentmanagementpolicyofinstitutionalinvestors.
RectorofBocconiUniversityofMilan AndreaSironi
Milan,Italy
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Contents
PartI InstitutionalInvestors:Typologies,RolesandProducts
1 InstitutionalInvestors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
IgnazioBasile
1.1 InstitutionalInvestorFeatures. . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2 DevelopmentFactors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.3 BenefitstotheFinancialSystem. . . . . . . . . . . . . . . . . . . . . . . 11
1.4 AnInternationalComparison.. . . . . . . . . . . . . . . . . . . . . . . . . 16
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2 CollectiveInvestmentVehiclesandOtherAssetManagement
Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
PierpaoloFerrari
2.1 AssetManagementProducts. . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.2 CollectivePortfolioManagement. . . . . . . . . . . . . . . . . . . . . . 31
2.3 InvestmentFunds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.4 UnitTrustSchemes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
2.5 Open-EndInvestmentCompanies. . . . . . . . . . . . . . . . . . . . . . 64
2.6 OtherAssetManagementProducts. . . . . . . . . . . . . . . . . . . . . 66
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
PartII InvestmentManagementPolicy
3 StagesofInvestmentManagementPolicy. . . . . . . . . . . . . . . . . . . . 79
PierpaoloFerrari
3.1 InvestmentManagementPolicy. . . . . . . . . . . . . . . . . . . . . . . . 79
3.2 IdentificationofObjectivesandConstraints. . . . . . . . . . . . . . . 79
3.3 FormalisationoftheInvestmentPolicy. . . . . . . . . . . . . . . . . . 82
3.4 ImplementationoftheFinancialStrategy. . . . . . . . . . . . . . . . . 82
ix