Global Asset Allocation and Risk Budgeting

2 days
Prague, NH Hotel Prague
  • Global Asset Classes
  • Strategic and Dynamic Asset Allocation
  • Constructing Optimal Portfolios
  • Indexation and Core-Satellite Investing
  • Managing Surplus Risk
  • Liability Driven Investing
  • Risk Budgeting and Portable Alpha
The purpose of this seminar is to give you a good understanding of state-of-the-art methods and tools for constructing and managing investment portfolios.

First, we explain the investment process and we discuss how the overall investment objectives and policies should be formulated within a general asset liability framework and how these policies should be reflected in the choice of benchmarks and in the delegation of relative or absolute return mandates.

We then take a closer look at the various traditional and alternative asset classes and explain how funds can be allocated to these asset classes using the optimization techniques of modern and post-modern portfolio theories. Methods include Bayesian Analysis, efficient frontier resampling, and the Black-Litterman asset allocation approach.

We also explain how dynamic asset allocation strategies such as "constant mix", "constant proportion portfolio insurance", "contingent immunization" and "option-based portfolio insurance" can be implemented to obtain the optimal risk-return profile, or to manage surplus risk, under various market conditions.

Further, we explain how "indexation" used for "passive" management and how this strategy can be enhanced through a core/satellite approach that leaves room for active management strategies to add returns beyond the benchmark indices.

After that, we explain how to manage "surplus risk" and how the increasingly popular "Risk Budgeting" technique can be used to allocate "risk units" to optimize the risk-adjusted returns across managers and asset classes. Finally, we explain the increasingly popular concept of "liability driven investing" (LDI) that focuses on considering risk on a relative basis versus liabilities when making asset allocation decisions and that measures investment success as the ability to meet future cash payments.

13.45 - 17.00 Strategic Asset Allocation and Portfolio Construction

  • ”Classic” Mean/Variance Optimization
    • Risk/return forecasting
    • Shortfall-optimization
    • Lower Partial Moments optimization
  • Dealing with the Problems in the Classic Optimization Approach
    • Time-varying volatility
    • Illiquid investments
    • Life cycle investing
    • Portfolio resampling
  • Bayesian Analysis and Portfolio Choice
  • Resampling the Efficient Frontier
  • The Black-Litterman Asset Allocation Model
  • Scenario Optimization
  • Exercises

Day Two

09.00 - 09.15 Recap

09.15 - 12.00 Dynamic Asset Allocation Strategies

  • Objectives of DAA
  • Presentation and Evaluation of Dynamic Strategies
    • Buy-and-hold
    • Constant mix
    • Constant proportion
    • Option-based portfolio insurance
  • Exercises

Indexation and Core-Satellite Investing

  • Traditional Benchmark-relative Optimization
  • Multiple Benchmark Optimization
  • Tracking Error efficiency vs. Mean-Variance Efficiency
  • The Core-Satellite Approach to Investing
    • Building a low-risk, low-cost core
    • Pursuing higher returns with active funds and individual positions
  • Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Risk Budgeting, Surplus Risk Management and Liability Driven Investing

  • Risk Allocation vs. Asset Allocation
  • Active Risk vs. Passive Risk
  • The Concept of “Portable Alpha”
  • Constructing Optimal Portfolios under Risk Budgeting Constraints
    • Defining objective function and constraints
    • Maximizing the Information Ratio
  • Surplus Risk Management
    • Defining the Surplus in an ALM Framework
    • Managing “Surplus-at-Risk”
  • Liability Driven Investing
    • Considering risk on a relative basis versus liabilities when making asset allocation decisions
    • Measuring investment success as the ability to meet future cash payments
  • Exercises

Evaluation and Termination of the Seminar

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