Thomas Schneeweis – The New Science of Asset Allocation

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Historical Security and Index Performance are simple ways to forecast future excess risk-Adjusted returns 215 The Most Recent Manager Fund Return Performance Provides Best Forecast of Future Return 215

Thomas Schneeweis – The New Science of Asset Allocation

Description

A framework for asset allocation in the post 2008 financial world

Asset Since the beginning, allocation has been a cornerstone of Investment management should be prudent. However, traditional allocation plans proved to be a disaster for investors in 2008. Asset Allocation is still an important part of the investment arena, and through a new approach, you’ll discover how to make it work.

In The New Science of Asset Allocation, authors Thomas SchneeweisHossein Kazemi, Garry Crowder and Garry Crowder first examine the myths surrounding this field, then move quickly to look at how the practice works. of Recent years have seen asset allocation fail. The new models are based on liquidity, transparency, real risk control, and are applicable to multiple asset classes.

This article outlines a new way to allocate assets in a post-2008 world where risk seems to be hidden
The “great manager” The problem is addressed with solutions for how to capture manager Alpha while minimizing downside risk
The case study shows how alpha and beta are allocated in a complete manner.

Written by an experienced team of Academic and industry experts. The New Science of Asset Allocation This video explains how this approach can be applied to a constantly changing financial environment.

ABOUT THE AUTHOR

THOMAS SCHNEEWEIS PHD, The Michael and Cheryl Philipp Professor of Financial Aid at the University of Massachusetts, Amherst. This is the founding director of The Center for International Securities and Derivatives Markets. He is also the founder editor. of The Journal of Alternative InvestmentsFounder of The Chartered Alternative Investment Analyst Association and a founding Director of Institute for Global Asset Management and Risk Management. His almost 40-year career has been a success. of His investment management experience has seen him associated with the growth of Fund replication products, alpha transfer and funds replication products, creation and development of The Zurich Hedge Fund Indices as well as the Dow Jones Hedge Fund Benchmark Series are instrumental in the creation of The Bache Commodity Index. Schneeweis Published widely in the region of It is often mentioned in the financial press as an example of investment management.

GARRY B. CROWDER JD, MBA He is an acknowledged expert in the creation and development of products. of Multi-Portfolio solutions and products. Crowder has implemented asset allocation strategies for major multinational banks, insurance companies, family offices, and other businesses. Crowder founded and was managing partner of One of The largest and most successful hedge fund platform based on managed accounts. As such, he was responsible for the creation of the Zurich Hedge Fund Indices (and the Dow Jones Hedge Fund Benchmark Series) and led the team. He has been in the business for more than twenty years. of His investment experience is his foundation director of Institute for Global Asset Morgan Stanley Risk Management, and has served as a managing director. Asset Management and Tiger Management LLC.

HOSSEIN KAZEMI PHD, CFA, is widely regarded as a leader within the region of Asset allocation. He has published more than thirty articles from both academic and practitioner perspectives in this area. of He is a founding partner. He is a founding partner of Alternative Investment Analytics, LLC, White Bear Partners, LLC. Kazemi is an academic. of Finance at the University of Massachusetts, Amherst is the Associate Director of The Center for International Securities and Derivatives Markets. He is the current Program Director of The Chartered Alternative Analyst Investment Association.

Preface xi

Acknowledgments xix

Chapter 1: A Brief History of Asset Allocation 1

In the Beginning

A Review of The Capital Asset Pricing Model 4

Asset Pricing in Derivative and Cash Markets 6

Models of Return and Risk After-1980 11

Asset Allocation Modern World 14

Product Development: Today, Tomorrow, and Yesterday 15

Notes 17

Chapter 2 Measuring risk 20

What is Risk? 22

Traditional Approaches for Risk Measurement 24

Classic Sharpe Ratio 26,

Other Measures of Risk Assessment 28

Portfolio Risk Measures: 30

Other Measures of Portfolio Risk Measurement 33

Value at Risk 34

Notes 37

Chapter 3 Alpha and beta, and the Search For a True Measure of Manager Value 39

What is Alpha? 39

Issues in Alpha and beta Determination 46

Problems in Alpha- and Beta Determination 48

Multi-Factor Return Estimation: An Example 50

Tracking Alternatives in Alpha Determination 54

Notes 56

Chapter 4 Asset Classes: What Are They? And Where To Put Them? 58

Overview and Limitations of The Existing Asset Allocation Process 59

Asset Allocation A Road Map 61 for Traditional and Alternative Investments

Strategy, Historical Return and Risk Attributes Allocation 66

Traditional Stock/Bond Allocation versus Multi-Asset Allocation 70

Comparative Risk and Return Analysis for Different Historical Time Periods 71

Extreme Market Sensitivity: 74

Market Segment or Market Sensitivity: What Does It Matter? 82

How New It is New? 84

Notes 88

Chapter 5 Strategic, Dynamic, and Tactical Asset Allocation 91

Asset Allocation Optimization Models 92

Strategic Asset Allocation 99

Tactical Asset Allocation 101

Dynamic Asset Allocation 107

Notes 109

Download now Thomas Schneeweis – The New Science of Asset Allocation

Chapter 6 Core and Satellite investment: Market/Manager Based Alternatives 110

How to determine the appropriate groupings and benchmarks

Sample Allocations

Core Allocation 119

Satellite Investment 120

Algorithmic aspects and discretionary aspects of Exposure 120 Core/Satellite

Replication Based Indices 122

Peer Group Creation—Style Purity 126

Notes 132

Chapter 7 Sources of Alternative Investments: Risk and Return 134

Asset Class Performance 135

Hedge Funds 139

Managed Futures (Commodity Trading Advisors). 143

Private Equity 148

Real Estate 153

Commodities 160

Notes 166

Chapter 8 Differences in Return and Risk among Similar Asset Class Benchmarks 167

Making sense of it of Traditional Stock and Bond Indices: 168

Private Equity 170

Real Estate 173

Alternative REIT Investments Indices

Commodity Investment 179

Hedge Funds

Hedge Fund Indices Based on Investable Managers 185

CTA Investments 189

Hedge Fund Example 189: Index vs. Fund Investment

Notes 194

Chapter 9 Risk Budgeting and Asset Allocation 195

Process of Risk Management: Multi-Factor Approach 195

Process of Risk Management: Volatility Target 200

Risk Decomposition of Portfolio 202

Risk Management Using Futures 203

Risk Management with Options 206

Covered call 206

Long Collar 208

Notes 210

Chapter 10 Myths of Asset Allocation 212

Drive Investor Attitudes, not Economic Information Asset Values 213

Diversification across Domestic or International Equity Securities Sufficient 214

Historical Security and Index Performance are simple ways to forecast future excess risk-Adjusted Returns 215

The Best Forecast Based on Recent Manager Fund Return Performance of Future Return 215

Superior Managers and Superior Investment Ideas are not Possible 216

Performance Analytics provide a comprehensive means to identify better performing managers. 216

Traditional Assets Reflect “Actual Values” Better Than Alternative Investments 217

Investors have no exposure to derivatives when investing in stock and bond investments 217

Stock and Bond Investment Resolves Investor Concerns about Leverage 218

Consider the Efficiency of The Stock and Bond Markets, Managers Offer No Useful Service 218

Investors can rely on academics and investment professionals to provide current models and theories 218

Alternative Assets are riskier than Equity and Fixed Income Securities 219

Alternative assets like hedge funds are Absolute Return Vehicles 220

Alternative investments such as hedge funds are unique in their investment strategies 221

Hedge Funds are Black Box Trading Systems unintelligible to Investors. 222

Hedge funds are traders, not investment managers 222

Alternative Investment Strategies Are So Unique, They Can’t Be Replicated 223

It doesn’t matter if you use traditional or alternative Indices in your research. Asset Allocation Model 223

Modern Portfolio Theory Is Too Simplistic To Deal With Private Equity, Real Estate, And Hedge Funds 223

Notes 225

Chapter 11 The Importance of Disretion in Asset Allocation Decisions 226

The Why and wherefore of Asset Allocation Models 226

Value of Manager Discretion 230

Manager Evaluation and Review The Due Diligence Process 223

Madoff: Due Diligence Wrong or Never Performed 233

Notes 239

Chapter 12 Asset Allocation: What is It Going? 240

A Uncertain Future 241

What is the Definition? of Order? 243

Costs and Benefits 246

Today’s Issue 246

Potential Governmental and Private Fund Responses To Current Market Concerns 247

Note 249

Appendix: Return and Risk of Asset Classes and risk factors through business cycles 251

Glossary: Asset Class Benchmarks 271

Bibliography 279

About the Authors 285

Index 287

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