The Pitfalls of        Mean-Variance Optimization                                           catastrophic events have a low...
About the Private Wealth Management Summit Spring 2012  The Investment           Network       –  marcus evans Summits gro...
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The Pitfalls of Mean-Variance Optimization - Interview: Robert Benson, Laird Norton Tyee - Private Wealth Management


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Robert Benson, Chief Investment Officer at Laird Norton Tyee and a speaker at the marcus evans Private Wealth Management Summit Spring 2012 puts the spotlight on the risks of relying on mean-variance optimization.

Join the 2014 Private Wealth Management Summit along with leading regional investors in an intimate environment for a highly focused discussion on the latest investment strategies in the market.

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The Pitfalls of Mean-Variance Optimization - Interview: Robert Benson, Laird Norton Tyee - Private Wealth Management

  1. 1. The Pitfalls of Mean-Variance Optimization catastrophic events have a low losses than to gains of an equal probability of occurring, they can cause magnitude. significant harm to a portfolio. In today’s global economy, there is a lot of Investors must utilize additional inter-correlation between what happens metrics, such as the Conditional Value in Greece and the S&P 500 in the US, at Risk metric which focuses on for example. Additionally, these events downside risk and takes it into account have always been more frequent than clients’ asymmetric appreciation of investors anticipate, when they assume returns and variance around returns. a normal distribution of investment returns. Generally, investors find it easy toInterview with: Robert Benson,Chief Investment Officer, Laird utilize the standard mean-variance optimization process, which assumes We must find aNorton Tyee that the correlations between assets are stable over time. Correlations are very dynamic, however, when we encounter different wayThe mean-variance theory that focuseson standard deviation is good most of Black Swans. At these times, mean- variance optimization fails to accurately of approachingthe time, but does not tell the wholestory, according to Robert Benson, Chief model performance. portfolioInvestment Officer at Laird Norton Tyee.When we experience events such as What changes in investment strategy does this call for? constructionthat of 2008, mean-varianceoptimization falls apart because the We must find a different way ofassumptions no longer hold water, approaching portfolio construction, onenegatively impacting the performance of that anticipates a largely normal What else should family officesan investment portfolio, he adds. distribution of returns over most time focus on? periods but also factors in theA speaker at the marcus evans observation that Fat-Tail events happen Many investment advisors just look atPrivate Wealth Management more frequently than normally the assets, as that is what they areSummit Spring 2012, in Amelia distributed returns suggest. hired to do. I strongly believe that aIsland, Florida, June 3-5, Benson talks more holistic approach is necessary. Weabout mean-variance optimization and The first step is to deemphasize our guide the children and grandchildren ofwhy it does not provide a complete reliance on these traditional metrics. wealthy families on how to be successfulrepresentation of markets. Standard deviation is simple enough for caretakers of multigenerational wealth. private wealth managers to We have seen many instances ofWhat is the downside of investing communicate to clients when analyzing individuals generating wealth andwithin a mean-variance framework? assets, but it does not fully measure subsequent generations spending it. what clients want. Standard deviationMean-variance optimization is good assumes that investors are equally Building and maintaining wealth requiremost of the time, but does not tell the happy/disappointed by equally sized different skill–sets and if they are notwhole story. In 2008 we saw that there gains/losses. History has shown us that taught how to be financially responsible,is always the risk of Fat-Tail or Black this is not the case. Investors have their family’s wealth may not lastSwan events. Although these potentially much stronger emotional reactions to beyond the second generation.
  2. 2. About the Private Wealth Management Summit Spring 2012 The Investment Network – marcus evans Summits group This unique forum will take place at The Ritz Carlton, Amelia Island, Florida, June delivers peer-to-peer information 3-5, 2012. Offering much more than any conference, exhibition or trade show, this on strategic matters, professional exclusive meeting will bring together esteemed industry thought leaders and trends and breakthrough solution providers to a highly focused and interactive networking event. The innovations. Summit includes presentations on unconventional investment strategies, Federal Tax Policy challenges, risk management strategies and the family office governance structure. Please note that the Summit is a closed business event and the Contact number of participants strictly Sarin Kouyoumdjian-Gurunlian, Press Manager, marcus evans, Summits limited. Division Tel: + 357 22 849 313 Email: For more information please send an email to All rights reserved. The above content may be republished or reproduced. Kindly inform us by sending an email to press@marcusevanscy.comAbout marcus evans Summitsmarcus evans Summits are high level business forums for the world’s leading decision-makers to meet, learn and discussstrategies and solutions. Held at exclusive locations around the world, these events provide attendees with a unique opportunity toindividually tailor their schedules of keynote presentations, think tanks, seminars and one-on-one business meetings.For more information, please visit: www.marcusevans.comUpcoming EventsEuropean Pensions & Investments Summit - www.epi-summit.comElite Summit (Europe) - www.elitesummit.comFoundations & Endowments Investment Summit (North America) - www.foundations-endowmentssummit.comUS Pensions Summit - www.uspensions-summit.comTo view the web version of this interview, please click here: