Showing papers on "Investment management published in 2007"

Fund Manager Use of Public Information: New Evidence on Managerial Skills

Abstract: We show theoretically that the responsiveness of a fund manager’s portfolio allocations to changes in public information decreases in the manager’s skill. We go on to estimate this sensitivity (RPI )a s theR 2 of the regression of changes in a manager’s portfolio holdings on changes in public information using a panel of U.S. equity funds. Consistent with RPI containing information related to managerial skills, we find a strong inverse relationship between RPI and various existing measures of performance, and between RPI and fund flows. We also document that both fund- and manager-specific attributes affect RPI. THE CONCEPT OF SOPHISTICATED INVESTORS permeates the economic literature in several areas, including market microstructure, tests of the efficient market hypothesis, and the performance evaluation of financial institutions. Sandroni (2000, p.1303) succinctly describes these investors as those who “are consistently better in predicting prices.” Whether such investors exist and whether they outperform others has been the subject of debate for at least a few decades, particularly in the literature on mutual funds. Specifically, while a vast number of performance measures have been proposed and extensively used to identify successful fund managers, 1 several studies question whether these measures actually capture managerial skills, given existing alternative explanations, such as luck, model misspecification, survivorship bias, or weak statistical

Optimal Asset Allocation and Risk Shifting in Money Management

Abstract: This article investigates a fund manager's risk-taking incentives induced by an increasing and convex relationship of fund flows to relative performance. In a dynamic portfolio choice framework, we show that the ensuing convexities in the manager's objective give rise to a finite risk-shifting range over which she gambles to finish ahead of her benchmark. Such gambling entails either an increase or a decrease in the volatility of the manager's portfolio, depending on her risk tolerance. In the latter case, the manager reduces her holdings of the risky asset despite its positive risk premium. Our empirical analysis lends support to the novel predictions of the model.

Investors' behaviour in the Athens Stock Exchange (ASE)

Abstract: Purpose – The purpose of this paper is to investigate the various methods and techniques used by Greek investors (both professional and individuals) when evaluating potential additions to their investment portfolios.Design/methodology/approach – The paper uses both a questionnaire survey and a series of interviews to examine the practice of investment management in terms of stock market forecasting and stock valuation. The respondents consist of six different groups of investors, drawn from across Greece, namely: official members of the Athens Stock Exchange, mutual fund management companies, portfolio investment companies, listed companies, brokers and individual investors (ININ).Findings – The results indicate that ININ rely more on newspapers/media and noise in the market when making their investment decisions, while professional investors rely more on fundamental and technical analysis and less on portfolio analysis. The investment horizon seems to have a direct association with the relative importanc...

The Use of Credit Ratings in Investment Management in the US and Europe

Abstract: We analyse a survey of 200 plan sponsors and investment managers in the US and Europe regarding the use of credit rating guidelines in the conduct of their investment activities. We find that ratings-based guidelines are widespread, but their forms and motivations vary considerably. The usage of ratings appears remarkably similar in the US and Europe. The adoption of ratings-based investment guidelines appears driven by the private sector, with regulation playing a relatively minor role. Guidelines generally reference ratings of specific agencies, rather than the ratings of all officially "recognized" agencies. Ratings-based guidelines seem unlikely to destabilize markets because although asset retention guidelines are common, rapid forced selling upon downgrades is not. Market participants express a preference on the margin for more accuracy over more stability, but stability is valued and guidelines rarely include agency outlook designations, which could be used to increase rating accuracy. These findings generally support the hypothesis presented in Cantor (2004) that ratings are used as governance tools by market participants to ameliorate principal-agent problems between asset managers and their clients.

The Use of Credit Ratings in Investment Management in the U.S. and Europe

Abstract: We analyse a survey of 200 plan sponsors and investment managers in the US and Europe regarding the use of credit rating guidelines in the conduct of their investment activities. We find that ratings-based guidelines are widespread, but their forms and motivations vary considerably. The usage of ratings appears remarkably similar in the US and Europe. The adoption of ratings-based investment guidelines appears driven by the private sector, with regulation playing a relatively minor role. Guidelines generally reference ratings of specific agencies, rather than the ratings of all officially “recognized” agencies. Ratings-based guidelines seem unlikely to destabilize markets because although asset retention guidelines are common, rapid forced selling upon downgrades is not. Market participants express a preference on the margin for more accuracy over more stability, but stability is valued and guidelines rarely include agency outlook designations, which could be used to increase rating accuracy. These findings generally support the hypothesis presented in Cantor [2004] that ratings are used as governance tools by market participants to ameliorate principal-agent problems between asset managers and their clients.

Offsetting the Implicit Incentives: Benefits of Benchmarking in Money Management

Abstract: Money managers are rewarded for increasing the value of assets under management. This gives a manager an implicit incentive to exploit the well-documented positive fund-flows to relative-performance relationship by manipulating her risk exposure. The misaligned incentives create potentially significant deviations of the manager's policy from that desired by fund investors. In the context of a familiar continuous-time portfolio choice model, we demonstrate how a simple risk management practice that accounts for benchmarking can ameliorate the adverse effects of managerial incentives. Our results contrast with the conventional view that benchmarking a fund manager is not in the best interest of investors.

Computerized method and system for score based evaluation of capital market investment decisions and strategies

Abstract: The disclosed computer-implemented investment management process particularly in the field of high yield corporate bond financial market consists of five distinct process phases. In a first phase, the financial market under evaluation is researched in order to obtain all the market business information necessary for the following market evaluation phases. The next three phases, as marked by the dotted line, are all part of the central evaluation process that will be described in more detail hereinafter. The first evaluation phase is a filtering phase where the market business information obtained from the previous research phase are filtered in order to separate useful information from non-useful information. In a following phase, the filtered business information at first is input to a subscoring process and thereafter to a scoring process. Finally, the obtained evaluation results (scores) are presented to a user in form of a recommendation displayed on a monitor or printed in paper format.

Socially Responsible Investment und umweltorientiertes Venture Capital

Abstract: Socially Responsible Investors are concerned about social, ethical and especially environmental issues in enterprises. They invest mostly through investment vehicles officially labelled SRI funds, or if not, then with clear mandates to their investment managers to invest responsibly. The investment universe of such funds and managers is usually limited to publicly-listed enterprises. Yet innovation and especially those in the environment sector occur in young, non-quoted companies. Venture Capital can play a vital role in financing innovations in environmental and clean energy technologies. This is a departure from traditional Venture Capital and is seen as such by the investment community, thereby withholding allocations to such Venture Capital initiatives. Who better then, than Socially Responsible Investors to provide capital to environment-oriented VC funds?

Socially responsible property investment (SRPI)

Abstract: Purpose – Socially responsible investment (SRI) is now a well established part of equities investment. Questions are now being raised over property investment and whether similar attempts to be “socially responsible” should be incorporated into investment practice. This paper aims to examine the investment practices of large fund managers for both equities and property in order to identify products and activities which are contributing to the progress of SRPI.Design/methodology/approach – Analysis was conducted of equities SRI, and potential SRPI activities, for the top ten UK property fund management using publicly available company literature. This was analysed using simple matrices to understand common activities, industry application, and market‐leading innovations. Relationships between progress in SRI and SRPI, are also explored, along with the consideration of SRPI actions in the context of SRI concepts.Findings – Market leaders were established in terms of their equities SRI products and services,...

Philanthropy management apparatus, system, and methods of use and doing business

Abstract: A philanthropic donation management system and methods of use and doing business. The system includes a computing server in communication with a communications network, such as the Internet, a LAN, or a WAN. The computing server maintains information about charitable projects and provides remote users and others with management tools for inputting information about charitable projects, pre-approving or otherwise assessing them, and accessing and managing charitable project information, portfolios, user team member information and access. The system can provide a business based on, for example, providing system, access, charitable fund management, and charitable donation transaction fees.

Trends in quantitative equity management: survey results

Abstract: In the second half of the 1990s, there was so much skepticism about quantitative fund management that Leinweber (1999), a pioneer in applying advanced techniques borrowed from the world of physics ...

Norwegian Petroleum Wealth and Universal Ownership

Abstract: How useful are universal owner arguments for a large, diversified investor such as Norges Bank Investment Management (NBIM)? This article presents concrete issues, such as climate change and corruption, which can be analysed using universal owner arguments. However, it also discusses potential weaknesses of this argumentative strategy. The article includes a general background to Norway’s Government Pension Fund Global – now one of the world’s largest funds – and concludes that such a fund could utilise universal owner insights in its work as an active owner by (1) addressing both companies and standard setters on issues of portfolio-wide, long-term importance; (2) respecting a division of labour between different actors in the market place; and (3) taking part in collaborative arrangements, both within organised networks and informally between investors.

Social responsibility: key terms and their uses in property investment

Abstract: Purpose – Corporate social responsibility (CSR), corporate governance (CG) and socially responsible investment (SRI) are now established terms among most large corporations, particularly in the field of investment. The aim of this paper is to explore the issue of social responsibility (SR) in property investment in the UK.Design/methodology/approach – A review of existing literature across different disciplines sought to explore the scope and boundaries of these issues. This was followed by a review of the approaches to, and reporting protocols of the activities of the five largest property investment management companies in the UK.Findings – The study revealed a significant variation in the way UK property investment management companies define and use SR‐related terms, both within and between companies in the same industry.Originality/value – The potential for confusion, difficulties in communication (both within and between companies) and dilution of the true meaning of these terms is significant for t...

System and methods for purchase reward investment communities

Abstract: Purchase rewards account holders accumulate rewards currency. A network-based investment management system allows account holders to purchase shares in investments using reward currency. When all the shares for a particular investment have been purchased, the underlying investment is acquired. Account holders owning shares in an investment may sell shares to other account holders through the system. Account holders are thereby able to invest their rewards dollars in investments typically requiring cash or cash equivalents and to grow their rewards currency.

Best-Practice Investment Management: Lessons for Asset Owners from the Oxford-Watson Wyatt Project on Governance

Abstract: Good governance by institutional fund asset owners makes a significant incremental difference to value creation as measured by their long-term risk-adjusted rate of return. Drawing upon best-practice case studies, it is argued that the principles of good governance can be summarised by organisational coherence, including an institution's clarity of mission and its capacities; people, including who is involved in the investment process, their skills and responsibilities; and process, including how investment decision-making is managed and implemented. Using the case studies to develop the principles and practice of good governance, there are a number of lessons to be learnt from our exemplars whatever the nature, scope and location of the institution - summarised through a set of 12 findings about global best-practice with implications for large and small institutions. Implications are also drawn for the design and management of sovereign funds that are increasingly important for national welfare in global financial markets. In conclusion, we see the challenge of governance as having two facets: to facilitate adaptation to the functional imperatives of operating in global markets given the heritage of an institution; and, over the long-term, to undertake reforms such that institutional form and structure is reformed to be consistent with the principles developed herein. In either case, funds can create more value if they correctly assess their governance and determine an investment strategy commensurate with their capabilities.

Decentralized investment management: an analysis of non-profit pension funds

Abstract: We investigate delegated investment management in private pension accounts using data from Australian accumulation (superannuation) funds. In Australian non-profit pension funds, trustees choose investment managers on behalf of members. We find that funds with many delegated managers have higher risk-adjusted returns than those with few. However funds with 13 or less specialized managers show no improvement over funds with a single diversified manager. All do worse than a benchmark portfolio of asset-class indices. Further, by using random selection to mimic the choices of an uninformed individual choosing from the same menu of delegate managers as used by trustees, we show that returns from pension funds with large numbers of trustee-selected managers compare favorably with returns from randomly selected, equally weighted portfolios. However this improvement falls off quickly for funds with fewer trustee-selected managers, or when randomly selected portfolios are also diversified across asset classes. Results indicate that an uninformed individual following a naive diversification strategy would have done as well as most trustee boards in this sample.

Dynamic Portfolio Analysis

Abstract: Dynamic portfolio analysis looks at the portfolio as a moving object to capture the essentials of a long-short investment management strategy. To see the forest rather than the trees requires simplifying assumptions, here a bare-bones two-parameter structure. One parameter measures the rate of information flow and the other the rate of trading in the portfolio. This framework yields informative results to explain the implementation efficiency of the strategy as well as the balance between the cost of trading and the benefit of trading. More significantly, it establishes a link between cause and effect. These notions can be used to engineer strategies, to analyze strategies, and to optimize the operation of strategies.

Wolf in Sheep's Clothing: The Active Investment Strategies behind Index Performance

Abstract: This paper argues that the commonly used market indices imply forms of active investment management in disguise. The selection and rebalancing rules make these indices highly exclusive and dynamic regarding their underlying components and significantly bias their performance. Any passive investment tracking these indices turns into an active strategy characterised by market timing and state-dependent performance. Evidence is provided that exclusive indices outperform (underperform) more inclusive peer indices in upward (downward) markets. The constitution and maintenance rules of exclusive indices correspond to a set of active trading and investment rules similar to momentum strategies.

Competition and Performance in the Polish Second Pillar

Abstract: This paper provides an assessment of the Polish funded pension system and the quality of the regulatory framework for the accumulation phase. There are two elements that distinguish the Polish pension fund portfolios from other reforming countries': the relatively high component of domestic equity, and the negligible component on international securities. Although this asset allocation has provided relatively high real rates of return in the past, it may not be the case in the future, as further portfolio diversification to other instruments will become necessary to ensure sustainable rates of return. The paper provides a number of recommendations to expand the opportunities of investments to pension funds. The paper finds that pension fund management companies have been able to exploit scale economies in certain areas of the business, such as collection of revenues, and proposes to study mechanisms to enhance them even more by centralizing also the account management system, which may also help to increase portfolio efficiency and competition. The paper suggests that, with the payout phase starting in 2009, broad definitions in areas such as the role of the public and private sector need to be established. The paper examines products and options that authorities may consider for the design of the payout phase.

What's in Your 403(b)? Academic Retirement Plans and the Costs of Underdiversification*

Abstract: Sponsors of defined contribution retirement plans typically limit the investment choices of plan participants to a small number of investment managers and a limited number of investment vehicles. Such restrictions may limit excessive risk-taking by participants but also may preclude opportunities for efficient diversification. Many college and university 403 (b) plans have restricted investment choices to the retirement annuities offered by TIAA-CREF, the current manager of over half of all 403(b) contributions. Using 10 years of historical data, we study the efficiency of this TIAA-CREF opportunity set relative to a larger set that includes several standard index funds. Extrapolations must be interpreted -with caution. Assuming optimal rebalancing, depending on loss aversion and diversification constraints, the historical sample of returns implies that over a 20-year remaining work life, an employee -with an expanded menu that includes standard index funds could gain over 40% in terminal wealth compared to one who is restricted to TIAA-CREF retirement annuities. Even when a naive diversification strategy of equally weighting (1/n) all available funds is used, the expandedmenu outperforms the restricted portfolio by more than 25% over20years. These differences generally are significant at conventional levels based on parametric and nonparametric testing and do not appear to result from idiosyncratic market performance durinz the sample period.

Investment principles for individual retirement accounts

Abstract: The phenomenal growth of individual retirement accounts in the U.S., and globally, challenges both individuals and their advisors to rationally manage these investments. The two essential differences between an individual retirement account and an institutional portfolio are the length of the investment horizon and the regularity of monthly contributions. The purpose of this paper is to contrast principles of institutional investing with the management of individual retirement accounts. Using monthly historical data from 1926 to 2005 we evaluate the suitability for managing individual retirement portfolios of seven principles employed in institutional investing. We discover that some of these guidelines can be beneficially applied to the investment management of individual retirement accounts while others need to be reconsidered.

System, method and computer program product for evaluating and rating an asset management business and associate investment funds using experiential business process and performance data, and applications thereof

Abstract: A method, system and computer program product for evaluating and rating an asset management business and their associated investment funds, including both traditional and alternative managers (i.e., hedge funds) is disclosed. The evaluation of an asset management business and associated investment funds is performed by extracting experiential infrastructure and investment performance data that exists on the computer systems of asset management firms and their outsourced service providers. Experiential infrastructure and investment data includes qualitative and quantitative information compiled or derived from operating systems, databases, applications, electronic files and records that relate to the asset manager's investment and infrastructure performance. Investment and infrastructure performance data also includes transactional and computational records as well as security and portfolio information supporting investment activity and infrastructure business processes. A set of metrics and a series of algorithms is used to measure and rate an asset management business in terms of investment and infrastructure performance. The evaluation and rating method includes: 1) measuring investment and business performance; 2) analyzing and interpreting the measures; 3) putting the results into a contextual framework; and 4) computing an overall rating for an asset management business based on both investment and infrastructure performance.

Offsetting the Incentives: Benefits of Benchmarking in Money Management ∗

Abstract: Money managers are rewarded for increasing the value of assets under management. This gives a manager an implicit incentive to exploit the well-documented positive fund-flows to relativeperformance relationship by manipulating her risk exposure. The misaligned incentives create potentially significant deviations of the manager’s policy from that desired by fund investors. In the context of a familiar continuous-time portfolio choice model, we demonstrate how a simple risk management practice that accounts for benchmarking can ameliorate the adverse effects of managerial incentives. Our results contrast with the conventional view that benchmarking a fund manager is not in the best interest of investors. JEL Classifications: G11, G20, D60, D81.

Endowment Asset Management: Investment Strategies in Oxford and Cambridge

Abstract: 1. Endowment Definition 2. The Investment Committee 3. Investment Objective 4. Spending Policy 5. Asset Allocation 6. Investing in Property 7. Issues in Portfolio Management 8. Portfolio Risk 9. Consultant Selection and Monitoring 10. Manager Selection and Monitoring 11. Socially Responsible Investment 12. Performance Measurement 13. Endowment Management Cost 14. Fund Raising: Role of Gifts 15. Conclusion

The Anachronism of the Voice-Exit Paradigm: institutional investors and corporate governance in the UK

Abstract: The voice-exit paradigm continues to serve as the framework for debating key issues in UK corporate governance. That paradigm, however, has become an anachronism with the recent changes in the scale and organisational structure of the UK asset management industry. As a result of these changes the “holding” and the “selling” of shares tend to be mutually inclusive rather than exclusive acts, and the capital market's corporate governance role is now exercised more through the gravitational pull of equity trading than through the medium of hostile takeovers. If the new realities are to be correctly appraised and factored into the corporate governance codes of conduct, the voice-exit paradigm has to be abandoned in favour of an alternative framework that is attuned to these realities. The aim of this paper is to help develop such a framework.

Constructing a dynamic stock portfolio decision-making assistance model: using the Taiwan 50 Index constituents as an example

Abstract: There are several decisions in investment management process. Security selection is the most time-consuming stage. Tatical allocation is in order to take advantage of market opportunities based on short-term prediction (Amenc and Le Sourd in Portfolio theory and performance analysis. Wiley, 2003). Although it is difficult to keep track of the fluctuations of volatile financial markets, the capacity of artificial intelligence to perform spatial search and obtain feasible solutions has led to its recent widespread adoption in the resolution of financial problems. Classifier systems possess a dynamic learning mechanism, they can be used to constantly explore environmental conditions, and immediately provide appropriate decisions via self-aware learning. This study consequently employs a classifier system in conjunction with real number encoding to investigate how to obtain optimal stock portfolio based on investor adjustment cycle. We examine the constituents of the TSEC Taiwan 50 Index taking moving average (MA), stochastic indicators (KD), moving average convergence divergence (MACD), relative strength index (RSI) and Williams %R (WMS %R) as input factors, adopting investor-determined adjustment cycle to allocate capital, and then constructing stock portfolio. We have conducted empirical testing using weekly and monthly adjustment cycle; the results revealed that this study’s decision-making assistance model yields average annual interest rate of 49.35%, which is significantly better than the −6.59% of a random purchase model. This research indicates that a classifier system can effectively monitor market fluctuations and help investors obtain relatively optimal returns. The assistance model proposed in this study thus can provide really helpful decision-making information to investors.

A conceptual model of asset portfolio decision making: a case study in a developing economy

Abstract: Asset allocation decisions in general contribute to the efficiency or otherwise of financial management, determine the wealth of investors, including pensions and insurance funds, and underpin the allocation of scarce economic resources in the economy. This area has remained under researched in the developing economies and it is argued that the results of this study reflect on the shortcomings of the orthodox rationalistic approaches to decision making in finance. The study is in the tradition of naturalistic decision-making and adopts a modified grounded theory approach to the discovery of the core concepts that guide investment managers’ decisions. The paper presents the results of a case study of the decision-making processes of investment managers in the Nigerian Insurance industry. The naturalistic setting highlights the importance of the security of the investment, social networks, consistency of returns, competency of management, stable environment and legal and regulatory controls as core investment decision making concepts. The emerging conceptual model is delineated and the results reflect in particular on those factors likely to impact upon financial decision-making in a developing economy. Key words: Asset portfolio, risks, returns, naturalistic decision making, grounded theory, Nigeria