Strategic Asset Allocation Training Course

By attending this course you will:

• Gain a thorough theoretical and practical overview of asset allocation
• Understand the practicalities of asset allocation programme implementation by investors
• Learn how an investor’s risk profile can be altered by asset allocation changes
• Refine your thinking on the drivers of investment returns and how this can impact asset allocation decisions
• Comprehend how asset liability modelling can create unrealistic asset allocation plans
• Obtain practical advice on how asset allocation decisions are implemented by a wide variety of different kinds of investors

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Day 1

Asset Allocation for Institutional Investors

• Asset Allocation: The essence of deciding where to invest
• What’s involved in setting up a global asset allocation plan?
• The types of clients and their asset allocation profiles reviewed, pensions, wealth managers, private banks, endowments and foundations
• Eligible asset classes and their drivers: Fixed income, equity, and alternatives
• Blending modern portfolio management tools, asset class correlations, and investment diversification

Asset Liability Models: A Starting Place

• Introducing the logic of ALM models
• Different types of asset liability models for different types of clients.
• Understanding weakness of models based on past statistics
• Market risks, asset shortfalls and risk of future projections
• The role of the pension, actuary, and asset allocation consultants
• Short history of pension asset liability models
• Applying ALM techniques to wealth managers, private banks, and sovereign wealth funds;
• The work process: Involving the client in the asset selection process

Further Details on Asset Classes and Modern Portfolio Theory

• Modern Portfolio Management Theory and what we can learn about diversification
• Some market history of asset classes and return drivers
• The risk in asset class: The history of market declines
• Drivers of asset class returns and the importance of behaviour finance
• Difficulties in benchmarking investment returns
• Indexed, passive and active investment management strategies and their place in the portfolio
• Liquid vs. illiquid asset returns
• Coming up with asset class expected return estimates and risk estimates
• Specifics of equity returns and equity risk
• Specifics of fixed income returns and bond market risk

Asset Allocation to Alternative Assets: Hedge Funds, Commodities, Private Equity and Real Estate

• Reviewing the world of “Alternative Assets”.
• Challenges to asset allocation using external managers
• Definitional problems: Hedge funds and “hedged” funds
• Drivers of alternative returns by strategy
• Overview of hedge fund strategies and impact on asset allocation
• Volatility profile of hedge funds and private equity
• Liquidity profile of hedge funds and private equity
• Current global uptake on alternative investments in the asset allocation process
• Fitting alternatives into the asset allocation process
• A review of endowment asset allocation

Understanding Market Risks and Investor Risk Tolerance

• Definition of asset risks
• Volatility
• Losses and drawdown
• Unknown and fat tail risk
• Importance of risk tolerance in the investment process
• Notes on risk budgeting: Why this approach has become popular
• Expected returns and risk tolerance of investors as dynamic variables
• The risk in 2008 to asset allocation programmes

Case Studies: The current Global Pension Crisis and funding levels: Examples
The endowment model of asset allocation, spectacular success until 2009?

Day 2

The Practice of Strategic Asset Allocation

• Strategic vs. tactical approaches to asset allocation
• Benchmarking and tracking error objectives
• Creating optimal and objective asset return targets
• Understanding shortfalls of using past data
• Further investment statistics used for asset allocation
• Techniques used for projecting asset class returns forward
• Correlations, contagion, and conditional correlations,
• Volatilities and return distribution
• Diversification levels and expected returns
• The unexpected, Black Swans, and other fat tail events

Mean Variance Portfolio Optimization

• Modern Portfolio Theory (MPT) and post-MPT
• Difficulties in asset class selection
• Dangers of benchmarking in declining markets
• Creating efficient frontiers
• Tweaking and changing inputs
• Expected returns
• Expected risks
• Expected correlations between portfolio components
• The investor’s risk profile
• Guidelines provided by the investor’s ALM study
• Optimisation of the asset mix

Group Exercise: Using a mean variance optimiser to create a Global Asset Allocation programme for various types of clients.

Tactical Asset Allocation Plans

• Current examples of tactical tweaking of strategic asset allocations plans
• The importance of the business cycle and investment returns
• Portable alpha plans and tactical asset allocation
• Fund sponsors and tactical asset allocation practice
• TAA overlays
• Rebalancing portfolios over time and investment behaviour

Implementing the Group Decision Making Process for Asset Allocation

• Challenges of fiduciary responsibility and investing “other people’s money”
• The prudent man rule and regulatory concerns in some jurisdictions impacting asset allocation
• Understanding the Investment Committee and implementation challenges
• Dangers of conventional wisdom and asset allocation
• Outperforming portfolios and the asset allocation decision
• Do we really need as much liquidity as we have as institutional investors?

Case Study: One percentile investor and asset allocation: Yale Endowment

Course Wrap-Up: Creating an ALM model and Asset Allocation Model for an institutional investor

To become a successful institutional investment manager you have to master a lot more than just good asset class selection. Other issues such as investment risk management, asset liability matching, implementing strategies within the constraints of the global investment markets and most importantly the practical challenges of implementing an asset allocation programme all play a pivotal role.

With this in mind this course has been designed to provide you with the perfect synergy between theory and practice. It begins by equipping you with a strong theoretical background that is then followed by a detailed, practical look at the development of an asset allocation programme. This will be demonstrated throughout the course with a number of case studies and real-life scenarios to help reinforce the practical applications learned throughout.