Morgan Stanley Investment Management research chair

The Morgan Stanley Investment Management "Financial Engineering and Global Alternative Portfolios for Institutional Investors" Research Chair is under the scientific responsibility of Lionel Martellini, Scientific Director of the EDHEC Risk and Asset Management Research Centre.

The objective of the chair is to research new forms of welfare-improving financial innovation through the engineering of alternative solutions for institutional portfolios. The study will look at whether alternative investment strategies, such as hedge funds, commodities, real estate and private equity, can be useful in both the core and the satellite components of a performance-seeking portfolio. It will also look at where these strategies can potentially bring beta and alpha benefits respectively, given that their impact on relative and absolute risk budgets must be assessed properly.

The initial research project relates to the design of dedicated financial engineering techniques aimed at allowing for sound management of risk budgets when alternative investment strategies are introduced into institutional investors’ portfolios.

The research chair is a three-year research programme piloted by a joint MSIM/EDHEC committee.

[Press release announcing the launch of the research chair: 20/02/08]

1. Alternative Investments for Institutional Investors: Risk Budgeting Techniques in Asset Management and Asset-Liability Management (January 2009):

    

    

   • Press release announcing the publication of the research:

      

     "New EDHEC research highlights long-term inflation-hedging attributes of real assets: 04/02/09"

      

   • Research publication:

      

     "Alternative Investments for Institutional Investors: Risk Budgeting Techniques in Asset Management and Asset-Liability Management; Noël Amenc, Lionel Martellini, Volker Ziemann; January 2009"

     This research publication finds that novel liability-hedging investment solutions can decrease the cost of inflation insurance and the probability of severe deficits for long-horizon investors versus a solution solely based on Treasury Inflation Protected Securities (TIPS) or inflation swaps. Liability-hedging investment solutions include commodities and real estate in addition to inflation-linked securities.

     While investing in real estate leads to higher shortfall probabilities in the short and medium term, the figures show that significantly lower probabilities are obtained in the very long run (greater than 30 years). The increased expected return generated through the introduction of commodities and real estate in addition to TIPS in a liability-hedging portfolio allows a reduced global allocation to a performance-seeking portfolio while meeting overall performance expectations, which in turn allows better risk management.