Multi Asset Class Investment Strategy (The Wiley Finance Series)

Cover......Page 1
Contents......Page 7
Introduction......Page 13
Acknowledgements......Page 21
WHAT IS STRATEGY?......Page 23
WHAT IS INVESTMENT STRATEGY?......Page 24
1. Real and Artificial Liabilities......Page 26
2. Mapping the Liability Cashflows......Page 29
3. Total Funding......Page 31
4. The Escalator Factor......Page 33
5. Putting it Together......Page 40
CONCLUSIONS......Page 41
SUMMARY......Page 43
THE ASSET ALLOCATION BACKGROUND......Page 45
POTENTIAL PROBLEMS IN MOVING TO A MULTI ASSET CLASS APPROACH......Page 47
Higher Returns as a Goal, not Peer Group Benchmarking......Page 48
LIQUIDITY......Page 50
DIVERSIFICATION......Page 51
LONG-TERM RETURNS......Page 53
Bonds......Page 54
HOW MUCH SHOULD BE ALLOCATED TO EACH ASSET CLASS?......Page 56
HOW IS THE YALE MODEL CURRENTLY ALLOCATED?......Page 57
Is there a Sufficiently Robust Benchmark Available for the Asset Class?......Page 59
CONCLUSIONS......Page 62
SUMMARY......Page 63
INTRODUCTION......Page 65
THE ATHEIST CATHEDRAL......Page 66
RISK AND THE CAPITAL ASSET PRICING MODEL......Page 71
HOW ‘RISK’ IS USED IN PRACTICE......Page 74
ARITHMETICAL PROBLEMS WITH BETA......Page 76
CONCEPTUAL PROBLEMS WITH BETA......Page 81
WHY BETA AND THE CAPM ARE IRRELEVANT......Page 85
SUMMARY......Page 87
4: How to Define Risk......Page 89
RISK AND UNCERTAINTY......Page 90
RISK AND DIVERSIFICATION IN THE ARTIFICIAL WORLD......Page 92
RISK IN THE REAL WORLD: UNCERTAINTY AND MATERIALITY......Page 94
TOWARDS A NEW DEFINITION OF RISK......Page 96
Return Risk......Page 99
SUMMARY......Page 106
PHI CALCULATIONS......Page 109
PHI AND BETA......Page 110
COMPOUND RETURN-BASED MODELLING......Page 113
THE FUTURE OF RISK ANALYSIS......Page 117
DIRECT COMPARISON OF DIFFERENT ASSET CLASSES......Page 120
OTHER TYPES OF RISK......Page 122
SUMMARY......Page 124
6: Quoted Equity......Page 125
ACTIVE VERSUS PASSIVE EQUITIES MANAGEMENT......Page 126
WHICH INDICES SHALL WE EXAMINE?......Page 133
WHAT CORRELATION IS THERE BETWEEN QUOTED MARKETS?......Page 134
Correlation and the Dollar Investor......Page 136
Correlation and the Sterling Investor......Page 139
RETURN RISK OF QUOTED EQUITIES......Page 140
HOW TO IMPROVE QUOTED EQUITY RETURNS......Page 144
SUMMARY......Page 151
WHAT IS A HEDGE FUND?......Page 153
HEDGE FUND INVESTMENT STRATEGIES......Page 156
WHAT BENCHMARKS ARE AVAILABLE AND WHICH SHOULD WE USE?......Page 160
How do the Various Hedge Fund Strategies Compare?......Page 163
What Return Risk is Present in Hedge Funds?......Page 165
Does the Index Properly Show Potential Portfolio Returns?......Page 168
HEDGE FUNDS WITHIN THE YALE PORTFOLIO......Page 170
WHAT CAPITAL RISK IS PRESENT IN HEDGE FUNDS AS AN ASSET CLASS?......Page 173
HOW ARE HEDGE FUND RETURNS CORRELATED WITH THOSE FOR QUOTED EQUITY?......Page 175
SUMMARY......Page 176
8: Private Equity......Page 177
VENTURE CAPITAL......Page 178
Stage......Page 179
Sector......Page 181
Geography......Page 183
VINTAGE YEAR VERSUS ANNUAL RETURNS......Page 190
FURTHER COMPLEXITIES OF PRIVATE EQUITY RETURNS......Page 192
What Return Risk is Present in Private Equity?......Page 194
What Capital Risk is Present in Private Equity?......Page 198
How do we Address the Slow Capital Take-up Issue?......Page 199
SUMMARY......Page 202
INVESTING IN PROPERTY......Page 205
Geography......Page 206
Sector......Page 207
Specialist Quoted Vehicles......Page 210
Private Institutional Funds (Limited Partnerships)......Page 213
What Level of Correlation Exists with Quoted Equity Returns?......Page 214
What Levels of Return Risk and Capital Risk does UK Property Exhibit?......Page 215
HOW HAVE RETURNS VARIED BY SECTOR?......Page 218
CAN PROPERTY RETURNS BE IMPROVED BY LEVERAGE?......Page 221
Analysing the Possible Effect of Leverage on a Property Portfolio......Page 225
SUMMARY......Page 229
WHAT IS ‘LIABILITY DRIVEN INVESTMENT’?......Page 231
THE DIFFERING POSITIONS OF THE PENSION PLAN AND THE EMPLOYER......Page 233
HOW DOES LIABILITY MATCHING HELP?......Page 235
Why Liability Matching does Not Work......Page 237
THE PENSION PLAN AS CREDITOR......Page 238
THE STRATEGIC DILEMMA......Page 240
PORTABLE ALPHA......Page 242
THE CONCEPT......Page 243
Problem 1: The Traditional Risk Model......Page 244
Problem 3: Exactly What is Being Suggested?......Page 246
Problem 4: Alpha Returns......Page 248
SUMMARY OF PORTABLE ALPHA......Page 249
RIVAL STRATEGIES?......Page 250
11: Liquidity......Page 253
CREATING ARTIFICIAL LIQUIDITY......Page 254
WHY DO INSTITUTIONAL INVESTORS NEED LIQUIDITY, AND HOW MUCH LIQUIDITY DO THEY NEED?......Page 255
ARE SO-CALLED ALTERNATIVE ASSETS REALLY ILLIQUID? AND, IF SO, JUST HOW ILLIQUID?......Page 258
Hedge Funds: Liquidity Considerations......Page 259
Private Equity: Liquidity Issues......Page 261
Property: Liquidity Issues......Page 263
Liquidity of So-called Alternative Assets......Page 264
IRRATIONALITY OF LIQUIDITY CONCERNS......Page 265
SUMMARY......Page 266
12: Portfolio Performance......Page 267
COST-ADJUSTED PERFORMANCE......Page 269
WHAT RETURNS WILL WE USE?......Page 272
PARAMETERS OF THE MODEL......Page 273
Relative Performance......Page 274
WHAT ABOUT REBALANCING?......Page 278
ARE PRIVATE EQUITY RETURNS MODELLED REALISTICALLY?......Page 281
CONCLUSIONS......Page 285
Appendix 1: Tables of Performance Figures......Page 289
Appendix 2: Investment Strategy for DC Schemes and Mature Pension Plans......Page 295
Index......Page 307