EDHEC unveils Risk Indices & Benchmarks spin-off
EUROPE - EDHEC Business School has launched a company to promote its indices, hoping its unique weighting methodology will appeal to passive investors.
EDHEC-Risk Indices & Benchmarks (ERIB) will be a separate entity from the business school, allowing it to retain its independence.
Talking exclusively to IPE, professor Noël Amenc, director of EDHEC-Risk Institute and chairman of the new group, said that while patenting research was not their main interest, it was to their benefit to reap the rewards of the school's established brand name and the research conducted.
Amenc said other indices applied an "ad-hoc" approach and that the academic research conducted by EDHEC as a foundation for the benchmarks would serve investors well.
"Because of our academic background, we can design a solution that is beyond the existing solutions," he said, pointing not only to their own research, but half a century worth of papers on modern portfolio theory.
However, he added that it was not their intention to create complementary benchmarks to those already in existence, but to focus on researching new indices.
Amenc cited the increasing popularity in minimum variance tools and pointed to a number of research papers published by the school as early as 2003 on the topic.
"It would be very easy for us to go to the market with a very sophisticated minimum variance tool," he said, conceding that research conduced since that time found they were not "optimal".
Volatility indices were further highlighted by the academic as a problematic area, with Amenc saying the current approach of using option prices to calculate implicit volatility was unsatisfactory.
"First of all, they rely on the options market, and you don't have a serious, liquid and well arbitrated options market everywhere," he said.
He added that implicit volatility was not possible across all markets, sectors or investment styles because options on the securities did not exist.
Amenc said the problem had led to the launch of a research and development department looking to avoid implied volatility when establishing current volatility.
"This is the spirit of being academic - always have a critical outlook in order to progress and to propose solutions that are increasingly optimal and robust," he said.
He their decision to launch indices focusing on the hedge fund universe would address flaws in those that already existed.
"We created these indices as an answer to the lack of representation of the traditional hedge fund indices, which were traditionally fund of funds," he said.
"They did not represent the universe - they represented the commercial strategy of the index provider and the content of their fund database.
"So we developed what we call indices of indices to try to increase how representative they were. They are not investible, but because being representative was the goal, we are very pleased with the indices."
Amenc said he hoped the newly launched indices, including a risk-efficient index series, would be attractive for 'smart beta' investors.
He said further that ERIB hoped to position itself as a provider for all passive investment players, whether index providers or managers.
In addition to its hedge fund indices and its risk efficient series, the EDHEC IEIF Commercial Property index for France will also be on offer, examining unlisted property funds falling under the country's SCPI scheme.
Separately, ERIB also announced that Eric Shirbini and Vijay Vaidyanathan would be heading up the two regional offices for the company, with Shirbini, former director of quantitative research at Nomura, named business development director for Europe and based in London.
Vaidyanathan has been named president of ERIB for North America, while an appointment for the Asia Pacfic market is expected in due time.
Vaidyanathan previously was chief executive of Return Metrics, a boutique investment management firm focusing on the development of economic models. He has spent time as both the chief strategy officer for US broadcaster NBC Internet and as chief technology officer at Xoom.com.