Asset managers "too comfortable with core" – Edhec
EUROPE - Investment professionals more often than not remain inside their comfort zone despite knowing about new techniques and research, French business school Edhec has suggested.
The Edhec European Investment Practices Survey, which questioned 229 European institutional investors and asset managers with over €10trn in asset under management, claims this failure to take advantage of research advances affects performance and risk management in Europe.
"Although a majority of managers take the "core-satellite" approach to asset management, many neglect the fundamentals of this approach and thus fail to take full advantage of the opportunities it provides for improved management of absolute and relative risk," according to Edhec.
Around 23% of respondents believe actively-managed funds in traditional asset classes belong to the "core", but this is a belief that translates into inefficiency in terms of tracking error management, searches for managers, and overall management costs, argues the report.
Additionally, new risk management techniques such as "portable alpha" - used by 21% of survey respondents - have been taken up by very few European asset managers.
Looking at indices and benchmarks, Edhec found "despite their flaws - and for want of truly credible alternatives - capitalisation-weighted indices remain predominant".
The study also describes how 42% of European institutional investors do not explicitly manage liability risk, and argues performance measurement is "still the stumbling block in the dialogue between investors and asset managers".
In another study, Edhec found fund of hedge funds (FoHF), which are, according to business school, "often taken to given an aggregate view of the industry's performance", on average returned 10.07% in 2007.
The Hedge Fund Performance in 2007 report, by Véronique Le Sourd, a senior research engineer with the Edhec Risk and Asset Management Research Centre, compared the results with a 3.53% return for the S&P 500 as well 13.62% in 2006, and 4.14% for the Lehman Global US Treasury Bond index - the first positive return since 2005.
All hedge fund strategies posted positive returns against more moderate performances in the equity and bond markets last year.
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