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- Product code: 23636
- ISBN: 0470027991,
ISBN13: 9780470027998,
320 pages, hardback
Published by John Wiley & Sons on 2006
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Rating: 5.0/5 (1 vote cast)
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Description of Multi-Asset Class Investment Strategy |
The book explains that instead of asset allocation being set in an isolated and arbitrary fashion, it is in fact the way in which specific hurdle investment returns can be targeted, and that this approach is already in use in the US (and has been for many years). It involves extended and detailed financial analysis of various asset class returns and proposes a five-asset class approach for future use.Opening with a study of the historic asset allocation practice of UK pension funds, the book shows how the current approach has led to the present funding crisis. It goes on to compare and contrast the UK approach with that of the US and to propose a new approach to UK asset allocation: the five asset class approach ("MAC Investing"). The book reviews and analyses different asset classes based on historic returns, examines risk, and concludes with a suggestion of the five asset classes to use; and quoted equities (both Domestic and foreign), hedge funds, private equity and property. This book also includes benchmark performance figures never previously published.
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ReviewsFrom the back cover:
"In a grey world, Fraser-Sampson's words jump off the page"
- Remy Kawkabani, CSFB
"Every pension trustee should read this book"
- Amanda Walker, London Pension Fund Authority
"MAC Investing stakes Fraser-Sampson's claim to be recognised as one of the great thinkers on portfolio theory, ranking alongside Markowitz and Swensen"
- Rebecca Meijlink, AlphaBet Capital
"Fraser-Sampson takes a refreshingly pragmatic approach to investment strategy"
- Zohra Nazar, Aberdeen Asset Management
"Cogently argued and well written &tells you everything your pension consultant doesn't want you to know!"
- Richard Sachar, Almeida Capital
| Contents of Multi-Asset Class Investment Strategy |
Introduction
Acknowledgements
1. Investment Strategy
What is strategy?
What is investment strategy?
Planning to achieve the objective
1. Real and artificial liabilities
2. Mapping the liability cashflows
3. Total funding
4. The escalator factor
5. Putting it together
Conclusions
Summary
2. Multi Asset Class Investing
The asset allocation background
Potential problems in moving to a Multi Asset Class approach
The Yale Model
Higher returns as a goal, not peer group benchmarking
Liquidity
Diversification
Long-term returns
The Yale Model and MAC investing
Bonds
Quoted equities
How much should be allocated to each asset class?
How is the Yale Model currently allocated?
What does one look for in selecting an asset class?
Is there a sufficiently robust benchmark available for the asset class?
Based on the benchmark, does it exhibit an acceptable level of return risk?
Based on the benchmark, does it exhibit an acceptable level of capital risk?
Based on the benchmark, does it exhibit an acceptable level of correlation with domestic quoted equities?
Conclusions
Summary
3. Risk
Introduction
The atheist cathedral
Risk and the capital asset pricing model
How 'risk' is used in practice
Arithmetical problems with beta
Conceptual problems with beta
Why beta and the CAPM are irrelevant
Summary
4. How to Define Risk
Risk and uncertainty
Risk and diversification in the artificial world
Risk in the real world: uncertainty and materiality
Towards a new definition of risk
Return risk
Capital risk
Summary
5. How to Calculate Risk
Phi calculations
Phi and beta
Compound return-based modelling
The future of risk analysis
Direct comparison of different asset classes
Other types of risk
Summary
6. Quoted Equity
Active versus passive equities management
Which indices will we examine?
What correlation is there between quoted markets?
Correlation and the dollar investor
Correlation and the sterling investor
Return risk of quoted equities
How to improve quoted equity returns
Summary
7. Hedge Funds
What is a hedge fund?
Hedge fund investment strategies
What benchmarks are available and which should we use?
How do the various hedge fund strategies compare?
What return risk is present in hedge funds?
Does the index properly show potential portfolio returns?
Hedge funds within the Yale portfolio
What capital risk is present in hedge funds as an asset class?
How are hedge fund returns correlated with those for quoted equity?
Summary
8. Private Equity
Venture capital
Stage
Sector
Geography
Vintage year versus annual returns
Further complexities of private equity returns
What return risk is present in private equity?
What capital risk is present in private equity?
What degree of correlation does it exhibit with quoted equity markets?
How does one address the slow capital take-up issue?
Summary
9. Property
Investing in property
Investing in property (real estate) directly
Geography
Sector
Investing in property indirectly
Quoted property companies
Specialist quoted vehicles
Private institutional funds (limited partnerships)
What performance benchmarks should we use?
What level of correlation exists with quoted equity returns?
What levels of return risk and capital risk does UK property exhibit?
How have returns varied by sector?
Can property returns be improved by leverage?
Analysing the possible effect of leverage on a property portfolio
Summary
10. LDI and Portable Alpha: Rival Strategies?
LIABILITY DRIVEN INVESTMENT
What is 'liability driven investment'?
The differing positions of the pension plan and the employer
How does liability matching help?
Why liability matching does not work
The pension plan as creditor
The strategic dilemma
Summary of LDI
PORTABLE ALPHA
The concept
Problem 1: The traditional risk model
Problem 2: Pure alpha
Problem 3: Exactly what is being suggested?
Problem 4: Alpha returns
Summary of portable alpha
Rival strategies?
11 Liquidity
Creating artificial liquidity
Why do institutional investors need liquidity, and how much liquidity do they need?
Are so-called alternative assets really illiquid? And, if so, just how illiquid?
Hedge funds: Liquidity considerations
Private equity: Liquidity issues
Property: Liquidity issues
Liquidity of so-called alternative assets
Irrationality of liquidity concerns
Summary
12. Portfolio Performance
Cost-adjusted performance
What returns will we use?
Parameters of the model
Relative performance
What about rebalancing?
Are private equity returns modelled realistically?
Conclusions
Appendix 1: Tables of Performance Figures
Appendix 2: Investment Strategies for DC Schemes and Mature Pension Plans
Index
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About G. Fraser-Sampson |
GUY FRASER-SAMPSON has twenty years' experience of the investment industry across a range of asset classes, most notably private equity. His career has included a spell as Investment Controller with the Abu Dhabi Investment Authority, and setting up and running for several years the European operations of one of the world's leading fund of funds managers. Guy is a well-known figure on the conference circuit, both as a speaker and as a panellist. His first major speech on MAC investing (to the UK's National Association of Pension Funds in 2005) sparked media attention around the globe and helped to establish MAC investing as one of the current hot topics of the investment world. He is the inventor of the Total Funding Model, by which pension funds can calculate their target rate of investment return, and previously developed a model for analysing the performance of buyout managers. Guy Fraser-Sampson has an LLB with Honours from King's College London and an MBA majoring in finance from Warwick Business School. Originally a practising lawyer, he was made an equity partner in a City of London law firm at the age of 26, having been elected a Fellow of the Royal Society of Arts a year earlier. Guy has contributed many articles over the years to investment and pension publications, but this is his first book.
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