Asset Management and Institutional Investors PDF
Preview Asset Management and Institutional Investors
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 ©SpringerInternationalPublishingSwitzerland2016 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartof the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilarmethodologynowknownorhereafterdeveloped. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publicationdoesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexempt fromtherelevantprotectivelawsandregulationsandthereforefreeforgeneraluse. Thepublisher,theauthorsandtheeditorsaresafetoassumethattheadviceandinformationinthis book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained hereinorforanyerrorsoromissionsthatmayhavebeenmade. Printedonacid-freepaper ThisSpringerimprintispublishedbySpringerNature TheregisteredcompanyisSpringerInternationalPublishingAGSwitzerland 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 ThiSisaFMBlankPage 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
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