Author: Eugene Podkaminer
Asset classes can be broken down into building blocks, or factors, that explain the majority of the assets’ risk and return characteristics. A factor-based investment approach enables the investor theoretically to remix the factors into portfolios that are better diversified and more efficient than traditional portfolios.
Seemingly diverse asset classes can have unexpectedly high correlations—a result of the significant overlap in their underlying common risk factor exposures. These high correlations caused many portfolios to exhibit poor diversification in the recent market downturn, and investors can use risk factors to view their portfolios and assess risk.
Although constructing ex ante optimized portfolios using risk factor inputs is possible, there are significant challenges to overcome, including the need for active, frequent rebalancing; creation of forward-looking assumptions; and the use of derivatives and short positions. However, key elements of factor-based methodologies can be integrated in multiple ways into traditional asset allocation structures to enhance portfolio construction, illuminate sources of risk, and inform manager structure.
Investing in Infrastructure: One way bet or booby trap?Nigel Brindley
As investor appetite for infrastructure assets grow, increasing risks threaten to undermine returns. Are the asset management skills available to preserve investment returns? This paper explores the evolving skill requirements required to secure returns from infrastructure as it enters a new cycle.
what do you want to do is you can do, if only you are willing to do....right? business it not only for our own selves, but also for everybody good also.
Investing in Infrastructure: One way bet or booby trap?Nigel Brindley
As investor appetite for infrastructure assets grow, increasing risks threaten to undermine returns. Are the asset management skills available to preserve investment returns? This paper explores the evolving skill requirements required to secure returns from infrastructure as it enters a new cycle.
what do you want to do is you can do, if only you are willing to do....right? business it not only for our own selves, but also for everybody good also.
The New Hedge Fund-Prime Broker RelationshipBroadridge
The financial crisis has changed the relationship between hedge funds and prime brokers. With the default of some leading providers, funds have realized that they should diversify their prime broker relationships and require more transparency on operational processes of prime providers. However, as the funds industry regains momentum, they are looking to their prime brokers to provide services that will support business expansion. Hence, prime brokers need to adapt their offering and IT infrastructure to respond to the changing market.
PRELIMINARY AND INCOMPLETE
If a quali ed investor has a choice between investing in a secretive fund and a transparent fund with the same investment objective, which should she choose? Prior work suggests that the secretive fund is better. Hedge fund managers generally use their discretion for the bene t of their investors (Agarwal, Daniel and Naik, 2009, Agarwal, Jiang, Tang and Yang, 2013). In this study we identify a subset of hedge funds managers, which appear to use their discretion to feign skill. Using a proprietary dataset obtained from a fund of funds, we document that hedge funds that are more secretive earn somewhat higher returns than their investment-objective-matched peers during up markets, consistent with earlier papers documenting skill-based performance, but signi cantly worse returns during down markets. This evidence suggests that at least part of the superior performance that secretive funds appear to generate is in fact compensation for loading on additional risk factor(s) as compared to their objective-matched peers.
What do Money Market Reforms Mean for Investors? A Roundtable Discussion with...Callan
Money market funds are an important source of liquidity and are critical to our financial markets.
Following the financial crisis of 2008, some money market funds “broke the buck,” with net asset values (NAVs) falling below $1 per share. The chaotic scene that ensued surprised investors, and regulators have responded by updating laws to prevent a repeat of that difficult time.
On July 23, 2014, the Securities and Exchange Commission adopted amendments to the rules that govern
money market mutual funds. The amendments address the risks of an investor run on money market funds,
while seeking to preserve the benefits of these funds. The new rules—the second wave of reforms since 2008—are effective October 14, 2014, but have a long compliance period (two years or more) to ease the transition.
New requirements include:
Institutional prime money market funds will have a floating NAV.
Portfolios must value securities according to their current market value and redeem shares based on the floating NAV.
Non-government money market fund boards will now be able to impose liquidity fees and redemption gates to address investor runs.
The 2014 changes further tighten disclosure requirements (e.g., the requirement to disclose a fund’s level
of daily and weekly liquid assets, net flows, and market-based NAV on a website) and define enhanced
diversification requirements and stress testing.
The ruling impacts many institutional investors, including sponsors of defined benefit and defined contribution plans. We assembled a group of Callan experts to highlight key provisions and their potential impacts on investors. Jim Callahan, CFA, manager of Callan’s Fund Sponsor Consulting group, sat down with his colleagues to discuss the latest money market reforms.
Roundtable participants included Bo Abesamis, Steve Center, CFA, and Jimmy Veneruso, CFA, CAIA, from Callan’s Trust and Custody, Fund Sponsor, and Defined Contribution groups.
The New Hedge Fund-Prime Broker RelationshipBroadridge
The financial crisis has changed the relationship between hedge funds and prime brokers. With the default of some leading providers, funds have realized that they should diversify their prime broker relationships and require more transparency on operational processes of prime providers. However, as the funds industry regains momentum, they are looking to their prime brokers to provide services that will support business expansion. Hence, prime brokers need to adapt their offering and IT infrastructure to respond to the changing market.
PRELIMINARY AND INCOMPLETE
If a quali ed investor has a choice between investing in a secretive fund and a transparent fund with the same investment objective, which should she choose? Prior work suggests that the secretive fund is better. Hedge fund managers generally use their discretion for the bene t of their investors (Agarwal, Daniel and Naik, 2009, Agarwal, Jiang, Tang and Yang, 2013). In this study we identify a subset of hedge funds managers, which appear to use their discretion to feign skill. Using a proprietary dataset obtained from a fund of funds, we document that hedge funds that are more secretive earn somewhat higher returns than their investment-objective-matched peers during up markets, consistent with earlier papers documenting skill-based performance, but signi cantly worse returns during down markets. This evidence suggests that at least part of the superior performance that secretive funds appear to generate is in fact compensation for loading on additional risk factor(s) as compared to their objective-matched peers.
What do Money Market Reforms Mean for Investors? A Roundtable Discussion with...Callan
Money market funds are an important source of liquidity and are critical to our financial markets.
Following the financial crisis of 2008, some money market funds “broke the buck,” with net asset values (NAVs) falling below $1 per share. The chaotic scene that ensued surprised investors, and regulators have responded by updating laws to prevent a repeat of that difficult time.
On July 23, 2014, the Securities and Exchange Commission adopted amendments to the rules that govern
money market mutual funds. The amendments address the risks of an investor run on money market funds,
while seeking to preserve the benefits of these funds. The new rules—the second wave of reforms since 2008—are effective October 14, 2014, but have a long compliance period (two years or more) to ease the transition.
New requirements include:
Institutional prime money market funds will have a floating NAV.
Portfolios must value securities according to their current market value and redeem shares based on the floating NAV.
Non-government money market fund boards will now be able to impose liquidity fees and redemption gates to address investor runs.
The 2014 changes further tighten disclosure requirements (e.g., the requirement to disclose a fund’s level
of daily and weekly liquid assets, net flows, and market-based NAV on a website) and define enhanced
diversification requirements and stress testing.
The ruling impacts many institutional investors, including sponsors of defined benefit and defined contribution plans. We assembled a group of Callan experts to highlight key provisions and their potential impacts on investors. Jim Callahan, CFA, manager of Callan’s Fund Sponsor Consulting group, sat down with his colleagues to discuss the latest money market reforms.
Roundtable participants included Bo Abesamis, Steve Center, CFA, and Jimmy Veneruso, CFA, CAIA, from Callan’s Trust and Custody, Fund Sponsor, and Defined Contribution groups.
Why Emerging Managers Now? - Infusion Global Partners WhitepaperAndrei Filippov
Traditional asset classes appear to offer uninspiring beta returns at present, and recent years’ hedge fund returns have disappointed both in magnitude and diversification benefits, likely reflecting capacity pressures associated with the concentration of AUM and inflows with larger funds. We argue that, by contrast, Emerging hedge funds offer a rich opportunity set with far fewer capacity issues where skilled managers with concrete competitive advantages in less efficient, smaller capitalization market segments can generate better, more sustainable and less correlated excess returns. Emerging managers do involve more investment and operational risk than larger peers; to that challenge we offer some suggestions on a thoughtful and rigorous approach to constructing an Emerging Managers allocation and balancing effective due diligence with scalability.
Callan research that found investors over the last 20 years have had to take on three times as much risk to earn the same return electrified the institutional investing community. The Published Research Group interviewed Jay Kloepfer and Julia Moriarty about how the research was done and its implications.
Callan's director of Hedge Fund Research, Jim McKee, explores the advantages of momentum-based investing strategies, which profit from market trends in whichever direction. He discusses the rationale behind them, how they are defined and harnessed for different diversification needs, and whether they are appropriate for fund sponsors.
The Renaissance of Stable Value: Capital Preservation in Defined ContributionCallan
*Stable value funds are low-risk investment options in participant directed plans that mix capital preservation with return generation. They invest in high-quality, short- and intermediate-duration fixed income securities, and utilize wrap contracts to insulate individual plan participants from market value fluctuations.
*Stable value funds serve as an alternative to more volatile or risky asset classes and are a direct substitute for a money market fund. They typically offer a more attractive yield than money market funds, except during periods when short-term rates are rising rapidly.
*This paper describes how the underlying mix of securities and issuer characteristics have evolved since the financial crisis, and why Callan sees stable value as a healthy and important part of the U.S. retirement plan marketplace.
Introduction
In this paper, we seek to answer questions defined contribution (DC) plan sponsors and their participants may have about stable value funds, including mechanics, instruments, liquidity, and implementation considerations. We also look at risk and performance, address benchmarking issues, cover recent trends, and provide key takeaways for DC plan sponsors.
Stable value funds are popular with DC plans and 529 college saving investors. According to Callan’s DC Index™, 65% of DC plans offer a stable value fund, and typically 14% of total plan assets are in such funds when offered.
We believe stable value can be an effective investment option for DC plan participants seeking capital preservation.
Grading the Pensions Protection Act, 10 Years LaterCallan
Do you remember the Pension Protection Act (PPA)? More than 900 pages of legislation touching seemingly every part of the retirement system. It presented challenges for defined benefits plans. Defined contribution (DC) plans instead saw beneficial provisions, including the permanence of certain provisions of the 2001 Economic Growth Tax Relief Reconciliation Act (EGTRRA) and the creation of safe harbors for using target date funds as defaults and for implementing automatic enrollment.
The PPA heralded a new era for DC plans with the potential to greatly increase workers’ access to retirement income security. But looking at the PPA’s report card, we do not see “straight As” over the last decade.
Many of the provisions took years to enact, and plan sponsors still seem to struggle with them. As the PPA celebrates 10 years, we ask: Was it successful? Did it transform DC plans in the way the industry had hoped? How can we do better?
Callan gives a grade to the performance of nine key PPA provisions over the past decade. We start with the least effective.
What’s on the minds of larger defined contribution (DC) plan sponsors? According to a recently released Callan Associates study conducted in late 2015 with almost 150 employers, fees, investments and compliance top the list. With more resources devoted to running this DC plan, what happens in the larger market usually trickles down market.
Though the number one action taken to reduce fiduciary liability was updating or reviewing their investment policy statement, followed by reviewing fees, the number one priority in 2016 will be compliance.
Other key findings from the Callan DC study include:
*61% use auto-enrollment with 1 in 5 employing re-enrollment for current employees
*88% of plans offer financial advice to employees
*75% benchmark their fees as part of fee calculation and 53% rebate revenue sharing
*86% use TDFs (target date funds) as their default option of QDIA – usage of the proprietary funds of the record keeper as their QDIA is down to 32% from 70% in 2011
*15% of plans increased the number of funds while 11% decreased the number
The DOL’s 2012 fee disclosure regs and the 2006 Pension Protection Act (PPA) were cited as the most important events affecting DC plans showing that fees and auto features paved by the PPA are keys drivers for lawmakers and plan sponsors.
Though there is a lot of noise about the pending DOL conflict of interest rule aimed at increasing oversight of DC plans as well as IRAs, most affected will be advisors, especially those selling proprietary products, and broker dealers that will have to impose greater scrutiny over their advisors that manage DC plans and IRAs.
The DOL rule could limit plan participants access to advisors and advice as well as education especially when they separate from employment but will have little impact on employers running their plan.
Target Date Funds - Finding the Right Vehicle for the Road to RetirementCallan
There seems to be no stopping target date fund (TDF) strategies, which are growing both in use within defined contribution (DC) plans and in products available. Each TDF manager differs in their underlying philosophy, which shapes construction and implementation.
The wide variety of options represents both a benefit and a challenge. As plan sponsors examine and monitor TDF options they must be aware of the differences and how these differences can ultimately affect participant outcomes.
This paper draws on Callan’s comprehensive data on TDFs and DC plans, which is gathered and analyzed annually.
We present key findings and highlight questions plan sponsors may want to consider when evaluating their TDF options.
***
Just as people rely on cars to get them where they need to go, Americans increasingly depend on TDFs to help them achieve their retirement goals. For the first time since the inception of the Callan DC Index™ in 2006, TDFs (25%) recently beat out U.S. large cap equity (24%) as the largest portfolio allocation in DC plans.
As part of Callan’s annual DC Trends Survey, more than 140 DC plan sponsors were asked about their use of TDFs. Callan also annually collects qualitative and quantitative data from target date managers representing both mutual funds and collective trusts. This paper leverages this combined data to examine the current state of the TDF universe and the differentiating characteristics that help drive outcomes.
Defined Contribution Plans and Fee Lawsuits: Stuck in the Mud or the Road to ...Callan
The message is clear for defined contribution (DC) plan sponsors: follow best practices established for plan fees or risk getting stuck in a costly and time-consuming lawsuit.
Nearly 40 401(k) fee lawsuits have been filed since 2006. The first generation of lawsuits focused on revenue-sharing violations, failure to understand specific costs, and use of retail mutual funds in 401(k) lineups. Over time these lawsuits have expanded in scope, covering everything from the prudence of offering certain stable value funds to adherence to investment policy statements.
In addition to monetary payments, settlements have typically included
requirements to:
• Competitively bid plan recordkeeping services
• Engage an outside consultant
• Utilize institutional or retirement-share classes where possible
• Add passively managed funds to the lineup
• Comply with the Department of Labor’s participant disclosure regulation
In this infographic, Callan describes select DC fee lawsuits. We suggest best practices to help plan sponsors keep their plan on the path to success.
Strategies with high active share have garnered much attention from institutional investors following the release of Martijn Cremers and Antti Petajisto’s research paper that introduced the concept.
In this paper we isolate the impact of active share on performance by focusing on “product pairs,” which are two portfolios that share many characteristics (same management team, basic philosophy, research platform, etc.) but have different degrees of concentration (concentrated vs. diversified), which translates fairly directly to a difference in active share.
We ran several analyses using product pairs identified in Callan’s database in order to better understand— and quantify—the performance differences between concentrated and diversified products managed by the same team. Our analysis reveals the inherent difficulty of identifying reliable predictors of excess return across strategies and over time. High active share may be worthy of consideration as a screening variable, but it is clearly only one of potentially dozens of factors that might influence the magnitude and direction of the excess return for any given strategy over time.
Author Gregory C. Allen is Callan’s President and Director of Research. He oversees Callan’s Fund Sponsor Consulting, Trust Advisory, and multiple other firm-wide research groups.
Greg is a member of Callan’s Management, Alternatives Review, and Client Policy Review Committees. He is also a member of the Investment Committee, which has oversight responsibility for all of Callan’s discretionary multi-manager solutions.
Emerging Managers: Small Firms with Big IdeasCallan
Everybody has to start somewhere, including investment managers. Even the largest firms with broad name recognition and substantial assets were once emerging firms.
Emerging managers generally include smaller and newer investment managers, potentially
with atypical ownership structures. While smaller asset pools can work against them in some cases, it can also work in their favor, enabling them to access opportunities that larger, more established investment managers cannot.
Many U.S. institutional investors have long track records of dedicated investments with emerging managers while others are just starting to examine the space.
Emerging manager programs are becoming more commonplace, particularly at public pension funds, as investors recognize the potential portfolio gains that can be achieved through investing with the diverse and entrepreneurial investment managers that make up the emerging manager space.
Callan has long recognized the value that diversity of professionals and firm size can bring to investment outcomes. Our founder Ed Callan was instrumental in launching Progress Investment Management more than two decades ago. In 2010, we launched Callan Connects to expand our universe of emerging manager and minority, women, and disabled owned firms.
In this interview, Uvan Tseng talks with Lauren Mathias, who oversees Callan Connects, about trends and issues in the emerging manager arena.
Managing Defined Contribution Plan Investments: A Fiduciary HandbookCallan
Employee Retirement Income Security Act (ERISA) fiduciaries face a challenging task: They must familiarize themselves with ERISA's complicated rules of fiduciary conduct. They must understand and evaluate the performance of plan investments, and in doing so, they are subject to ERISA's prudent expert and exclusive purpose standards. In this handbook we focus on defined contribution (DC) plan investment fiduciaries and some of the key issues they face.
Callan’s 2014 Investment Management Fee Survey provides a current report on institutional investment management fee payment practices and trends. To collect this information, Callan sent an electronic questionnaire to a broad sample of U.S.-based institutional fund sponsors and investment management organizations. Respondents provided fee information for calendar year 2013 (specific dates varied by organization, but the majority were as of December 31, 2013), and perspective on fee practices and perspectives for 2014. We supplemented this data with information from Callan’s proprietary databases to establish the trends observed in this report.
Callan conducted similar surveys in 2004, 2006, 2009, and 2011. We offer commentary regarding differences, where relevant, between historical survey results and the 2014 findings, along with observations reflecting both long- and short-term trends.
Seventy-two fund sponsors representing $859 billion in assets, and 211 investment management organizations with $15 trillion in assets under management, provided detailed fee practices and data on 15 asset classes. Results were supplemented by actual and published fee information sourced from Callan’s fund sponsor and investment manager databases, as well as other industry sources.
Key Findings:
*Investment management fees represent 46 basis points (bps), on average, of fund sponsors’ total assets, up from 37 bps in
2009. The difference between the median and average has climbed over this time period. Other data in Callan’s fee survey also reveals a divergence between the funds that pay the most and those that pay the least in investment management fees.
*The range between funds that paid the most (10th percentile) and those that paid the least (90th percentile) increased dramatically:
from 56 bps in 2009 to 73 bps in 2013. Differences in investment policy, and notably asset allocation, can lead to
substantial disparity in fees. While some funds are increasingly looking to low-cost, public market index strategies, others are
investing a greater portion of their portfolio in high-cost alternative assets. Other key survey findings include:
Alternatives, which are consistently the most expensive asset class, are facing fee compression: the median total asset class fee declined from 134 bps in 2009 to 99 bps in 2013, and the 90th percentile fell from 174 bps to 152 bps. Large allocations to alternatives can greatly increase overall investment management fees.
Correlations between percentage of total portfolio allocated to alternatives and fees paid (in bps) were strong in 2013 (+0.70).
Total U.S. and non-U.S. equity fees paid increased marginally from 2009 to 2011, but declined from 2011 to 2013. Median U.S. equity fees run about 60% of their non-U.S. counterparts. Non-U.S. fees are typically higher in part due to research expenses. Fixed income median expenses were flat from 2009 to 2013.
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
Key Features of USDA Loans:
Zero Down Payment: USDA loans require no down payment, making homeownership more accessible.
Competitive Interest Rates: These loans often come with lower interest rates compared to conventional loans.
Flexible Credit Requirements: USDA loans have more lenient credit score requirements, helping those with less-than-perfect credit.
Guaranteed Loan Program: The USDA guarantees a portion of the loan, reducing risk for lenders and expanding borrowing options.
Eligibility Criteria:
Location: The property must be located in a USDA-designated rural or suburban area. Many areas in California qualify.
Income Limits: Applicants must meet income guidelines, which vary by region and household size.
Primary Residence: The home must be used as the borrower's primary residence.
Application Process:
Find a USDA-Approved Lender: Not all lenders offer USDA loans, so it's essential to choose one approved by the USDA.
Pre-Qualification: Determine your eligibility and the amount you can borrow.
Property Search: Look for properties in eligible rural or suburban areas.
Loan Application: Submit your application, including financial and personal information.
Processing and Approval: The lender and USDA will review your application. If approved, you can proceed to closing.
USDA loans are an excellent option for those looking to buy a home in California's rural and suburban areas. With no down payment and flexible requirements, these loans make homeownership more attainable for many families. Explore your eligibility today and take the first step toward owning your dream home.
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
Abhay Bhutada Leads Poonawalla Fincorp To Record Low NPA And Unprecedented Gr...Vighnesh Shashtri
Under the leadership of Abhay Bhutada, Poonawalla Fincorp has achieved record-low Non-Performing Assets (NPA) and witnessed unprecedented growth. Bhutada's strategic vision and effective management have significantly enhanced the company's financial health, showcasing a robust performance in the financial sector. This achievement underscores the company's resilience and ability to thrive in a competitive market, setting a new benchmark for operational excellence in the industry.
how can I sell pi coins after successfully completing KYCDOT TECH
Pi coins is not launched yet in any exchange 💱 this means it's not swappable, the current pi displaying on coin market cap is the iou version of pi. And you can learn all about that on my previous post.
RIGHT NOW THE ONLY WAY you can sell pi coins is through verified pi merchants. A pi merchant is someone who buys pi coins and resell them to exchanges and crypto whales. Looking forward to hold massive quantities of pi coins before the mainnet launch.
This is because pi network is not doing any pre-sale or ico offerings, the only way to get my coins is from buying from miners. So a merchant facilitates the transactions between the miners and these exchanges holding pi.
I and my friends has sold more than 6000 pi coins successfully with this method. I will be happy to share the contact of my personal pi merchant. The one i trade with, if you have your own merchant you can trade with them. For those who are new.
Message: @Pi_vendor_247 on telegram.
I wouldn't advise you selling all percentage of the pi coins. Leave at least a before so its a win win during open mainnet. Have a nice day pioneers ♥️
#kyc #mainnet #picoins #pi #sellpi #piwallet
#pinetwork
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
when will pi network coin be available on crypto exchange.DOT TECH
There is no set date for when Pi coins will enter the market.
However, the developers are working hard to get them released as soon as possible.
Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
how can i use my minded pi coins I need some funds.DOT TECH
If you are interested in selling your pi coins, i have a verified pi merchant, who buys pi coins and resell them to exchanges looking forward to hold till mainnet launch.
Because the core team has announced that pi network will not be doing any pre-sale. The only way exchanges like huobi, bitmart and hotbit can get pi is by buying from miners.
Now a merchant stands in between these exchanges and the miners. As a link to make transactions smooth. Because right now in the enclosed mainnet you can't sell pi coins your self. You need the help of a merchant,
i will leave the telegram contact of my personal pi merchant below. 👇 I and my friends has traded more than 3000pi coins with him successfully.
@Pi_vendor_247
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
2. 2 ◆ WWW.CFAINSTITUTE.ORG
WHY LOOK AT RISK FACTORS?
Recent periods of market stress and dislocation have cre-
ated considerable interest in credible alternatives to MVO
asset allocation methodologies. A multitude of alternative
approaches question the quality of the inputs rather than
the tools,such as optimizers,that assist in generating asset
allocations.From an attribution perspective,many vendors
of risk analytics systems use factors to provide a clearer per-
spective on common exposures across an entire portfolio,
rather than simply reporting on siloed asset classes mea-
sured with incompatible tools. Practitioners seek inputs
that capture essential trade-offs, with logical relationships
among components that result in reasonable portfolios.
This spawns an interest in a risk factor approach.
Many traditional asset class and sub-asset-class
correlations have trended upward over the past decade.
These correlations rose to uncomfortable levels dur-
ing the 2008–09 crisis, driving a desire to find a way
to construct portfolios with lower correlations between
the various components. High correlations caused many
investors to question basic assumptions about traditional
models. Seemingly disparate asset classes moved in lock-
step during the depths of the crisis, and the distinction
in returns between U.S. equity and non-U.S. equity, for
instance, was largely immaterial. Because many asset
classes, such as equity, fixed income and real estate, have
become increasingly correlated, some investors have
sought out less correlated, alternative investments, such
as hedge funds, commodities, and infrastructure.
Ideally, investors could create portfolios using many
components with independent risks that are individu-
ally rewarded by the market for their level of risk. Asset
classes could be broken down into building blocks, or
factors, that explain the majority of their return and
risk characteristics. These asset classes would provide
an indirect way to invest in factors, but it is also pos-
sible to invest in some factors directly. The advantage to
a factor-based approach is that factors can, theoretically,
be remixed into portfolios that are better diversified and
more efficient than traditional methods allow.
Prior to fully defining factors and explaining how
they are derived,I review some of the basic tenets of asset
class–based portfolio construction, including tools and
required inputs, in order to understand how a risk fac-
tor–based approach diverges from the traditional asset
class approach. The use of risk factors is the next step in
the evolution of the policy portfolio.
THE BASICS OF PORTFOLIO OPTIMIZATION
What Is an Asset Class? Asset classes are bundles
of risk exposures divided into categories—such as equi-
ties, bonds (or debt), and real assets—based on their
financial characteristics (e.g., asset owner versus lender).
Exhibit 1 depicts the asset classes of equity and debt and
their sub- and sub-sub-asset classes. Ideally, asset classes
are as independent as possible, with little overlap and, in
aggregate, cover the investment universe with minimal
gaps. In this construct, a myriad of common factor expo-
sures drives the correlations between asset classes. There
are important distinctions between asset classes and sub-
asset classes. The more granular the difference between
various asset classes,the higher the resulting correlations.
Typical asset allocation relies heavily on sub-asset classes
(e.g., large-cap and small-cap U.S. equity).There are very
few actual archetypal asset classes— global equity, global
fixed income, cash, and real assets.
Modern Portfolio Theory and the Efficient Fron-
tier In 1952, Markowitz and other contributors created
a framework for constructing portfolios of securities by
quantitatively considering each investment in the context
of a portfolio rather than in isolation. Modern portfolio
theory’s (MPT's) primary optimization inputs include:
• E(r) for expected return
• E(σ) for expected standard deviation,a proxy for risk
• E(ρ) for expected correlations between assets
One of the key insights of MPT is that correlations
less than 100% lead to diversification benefits, which are
considered the only free lunch in finance. Sharpe (1963,
What are factors?
Factors are the basic building blocks of asset
classes and a source of common risk exposures
across asset classes. Factors are the small-
est systematic (or nonidiosyncratic) units that
influence investment return and risk character-
istics. They include such elements as inflation,
GDP growth, currency, and convexity of returns.
In a chemistry analogy: If asset classes are
molecules, then factors are atoms. Thus, fac-
tors help explain the high level of internal cor-
relation between asset classes.
4. 4 ◆ WWW.CFAINSTITUTE.ORG
To understand the limitations of the traditional
MVO inputs (asset classes) and resulting efficient fron-
tier portfolios, consider a typical institutional portfolio
as represented by the 2012 Pensions Investments
average of the Top 200 defined-benefit plan alloca-
tions, shown in the left pie chart of Exhibit 3. Many of
the multicolor pie slices are highly correlated with one
another.The chart on the right aggregates the exposures
into more basic asset classes. Equity-like exposures in
one hue and credit exposures in another reveal a less
diverse mix.
The credit component of fixed income can be thought
of as “equity light”; by definition, it features a positive
correlation with equities (this is somewhat tempered by
government and other, noncredit fixed income sectors).
Many traditionally constructed portfolios are dominated
by allocations to equity and equity-like assets and thus are
prominently exposed to equity risk.Even though the asset
classes in the left pie chart appear diverse, their exposures
are not as different as would initially seem.
Correlations between portfolio components—asset
classes in this case—can be high because many of the
asset classes are exposed to similar risks which, in com-
bination, drive the majority of returns of each asset class.
For example, as depicted in Exhibit 4, U.S. equity and
U.S.corporate bonds share some common risk exposures,
such as currency, volatility, and inflation risk. The signif-
icant overlap in factor exposures is the primary driver
of unexpectedly high correlations between seemingly
diverse asset classes. Thus, decomposing the portfolio
into factor exposures broadens our understanding of the
relationships between asset classes.
Exhibit 3. Average Large Plan Allocation
Global Fixed Income
Cash
Private Equity
Real Estate
Other Alternative Investments
Real Estate
Other Alternative Investments
Global Equity
U.S. Equity
U.S. Fixed
Income
Non-U.S.
Equity
Equity
Equity
Credit
Govt. Other
Fixed Income
Exhibit 2. Traditional Asset Class Efficient Frontier
Cash
U.S. Fixed Income
Real
Estate
Non-U.S.
Equity
Emerging
Markets Equity
Private
Equity
U.S.
Equity
24% U.S. Equity
14% Non-U.S. Equity
5% Emerging Mkt. Equity
45% Fixed Income
8% Real Estate
4% Private Equity
E(r) = 6%, E(σ) = 11%
0% 5% 10% 15% 20% 25% 30% 35%
2%
4%
6%
8%
10%
ExpectedReturn
Expected Risk (Standard Deviation)
6. 6 ◆ WWW.CFAINSTITUTE.ORG
folds together global developed GDP growth, pro-
ductivity, liquidity, together with other characteristics.
Other types of factors include liquidity, leverage, and
private markets, for which marketable proxies are chal-
lenging to find. It is possible to reconstitute an asset
class from these building blocks. Cash would be the
combination of real interest rates and inflation. Core
bonds would add some of the elements under the “fixed
income” heading. Investors can gain exposure to factors
via investable proxies, although some factors are easier
to access than others.
Factor Exposures Gaining exposure to factors is
rather challenging—which is one reason they are seldom
applied in institutional portfolios.Ironically,even though
risk factors are the basic building blocks of investments,
there is no “natural” way to invest in many of them
directly. For instance, much debate revolves around
obtaining exposure to GDP growth. Although many
studies explore the existence of a link between equity
market returns and GDP growth, consensus is lacking.
Establishing exposures to some other factors is simpler.
Many factors necessitate derivatives and/or long/short
positions in order to capture a spread.For instance,expo-
sure to inflation can be constructed by using a long nom-
inal U.S. Treasuries position and short TIPS (Treasury
Inflation-Protected Securities) position. Other examples
of how to capture specific factor exposures are
• Inflation: Long a nominal Treasuries index, short a
TIPS index
• Real interest rates: Long a TIPS index
• Volatility: Long the VIX Futures Index
• Value: Long a developed country equity value index,
short a developed country equity growth index
• Size: Long a developed country equity small-cap
index,short a developed country equity large-cap index
• Credit spread: Long a U.S. high-quality credit
index, short a U.S.Treasury/government index
• Duration: Long a Treasury 20+ year index, short a
Treasury 1–3 year index
Deriving Factor Characteristics: Return, Risk and
Correlation Practical considerations and shortcomings
become apparent as soon as we cross from theory to actual
construction of factor-based portfolios. As mentioned, it
is difficult,if not impossible,to gain exposure to some fac-
tors, and we cannot yet model all of the granular factors
presented in Exhibit 5 because effective investable prox-
ies are lacking.Thus, to create a portfolio constructed on
Exhibit 6. Historical Risk and Return for Selected Factors
(periods ending 31 December 2011)
8. 8 ◆ WWW.CFAINSTITUTE.ORG
short positions (except for developed country economic
growth, real interest rates, and volatility, which can be
accessed via long-only instruments or derivatives).
The expectation is that the building blocks individu-
ally will produce modest returns. Exhibit 6 shows that
factor returns (or premiums) are fairly low; most have
returned less than 5% over the past decade. Factor stan-
dard deviations range widely, from 4% to 82%.
Exhibit 6 illustrates how factor portfolios evolve.
Factor returns and risks are extremely time sensitive.
Changing the observation window can materially affect
the observed risk and return relationships. For instance,
the emerging markets spread returned an annualized
3.76% over 15 years, 11.17% over 10 years, and 6.55%
over five years. Volatility, as its name suggests, has also
proven erratic, with annualized returns ranging from
–0.17% over 10 years to 15.15% over the past five years.
The correlation matrix in Exhibit 7 is shaded to show
pair-wise relationships with various degrees of diversifi-
cation benefits: dark tints for low correlations (less than
–0.30), medium tints for factors that are close to uncor-
related (between –0.30 to +0.30), light tints for modestly
correlated (between +0.30 and +0.60), and white for sig-
nificantly correlated (above +0.60).
Correlations between factors are low, typically
ranging from –0.50 to +0.60. Volatility and inflation
demonstrate very low, often negative, correlations with
most of the other factors. Somewhat highly correlated
factors are developed economic growth with high-yield
spread and high-yield spread with default. Sub-asset
classes, such as U.S. small cap and U.S. large cap, are the
most correlated, whereas relatively unrelated pairings,
such as U.S. 1–3 year Treasuries and private equity, have
low correlations.
The average correlation for the 10 factors in Exhibit
7 is +0.02.This figure is significantly less than many asset
class correlations, which range from –0.15 to more than
+0.90. If factors are properly specified and isolated, they
generally have little correlation with each other because
all of the systematic risk has been stripped out.
The correlation relationships exhibit greater stability
over time than return and standard deviation do. Within
the broad ranges described here, the fundamental eco-
nomic relationships appear to hold over multiple time
periods. The average correlations for these 10 factors for
the three observation periods vary within a small range,
from –0.0021 to +0.0092.
CONSTRUCTING FACTOR PORTFOLIOS
The 10 factors have been used to construct a simple equal-
weighted portfolio with monthly rebalancing. Exhibit 8
allows a comparison of this portfolio with a traditional
portfolio consisting of 40% the Russell 3000 Index, 20%
the MSCI All Country World Index (ACWI) ex USA,
and 40% the Barclays US Aggregate Bond Index, all also
rebalanced monthly. Fees and costs (including rebalanc-
ing costs) are ignored in this example.
Given the historical risk, return, and correlation
inputs, we would expect the factor portfolio to have
modest return and risk—in contrast to the traditional
portfolio, where the majority of the risk budget is spent
on equity-like assets.
In fact, Exhibit 8 shows that the simple factor port-
folio features equity-like returns (between 5% and 7%
annualized over multiple time periods) with considerably
less volatility. The traditional portfolio produces broadly
similar returns (between 2.5% and 6%) but with consid-
erably greater risk.
When standard deviation is converted into vari-
ance (which is the term of interest for an optimizer),
Exhibit 8 shows that the factor portfolio has 34 units
of variance compared with the 119 units in the tradi-
tional portfolio over 15 years. The simple factor port-
folio historically achieved a slightly higher level of
return than the traditional portfolio while taking on
about one quarter of the volatility. Interestingly, the
two portfolios are only slightly uncorrelated (–0.29)
with each other.
Examining the data for the trailing 10-year period
in Exhibit 8,we see a similar relationship; both portfolios
returned roughly 6% but at very different risk levels.The
factor portfolio variance is one-quarter of the traditional
portfolio’s variance. During the more dramatic previ-
ous five-year period, the factor portfolio returned 6.74%
(helped significantly by the high return of the volatility
factor), once again at roughly one-quarter the volatility
of the traditional portfolio.
Factorcharacteristicsappeartobe time-perioddepen-
dent; if different start or end dates were selected,both fac-
tor and traditional portfolios would have different risk and
return characteristics. This simple exercise demonstrates,
10. 10 ◆ WWW.CFAINSTITUTE.ORG
equal-weighted portfolio returned 4.75%. The 2.82 per-
centage point return difference is achievable only, how-
ever, with extraordinarily prescient forecasting skills.
Over 10 years, the difference is 2.89 percentage points,
and over 5 years, 2.36 percentage points. The optimized
portfolios clearly are a product of their times. We would
expect similar best-fit results from using backward-
looking returns over these periods also for optimizing
asset classes and sub-asset classes. Fixed income rallied
during the long decline in rates, and emerging markets
surged during their bull market run.
CHALLENGES IN FACTOR-BASED PORTFOLIO
CONSTRUCTION
Although the diversification benefits of factors is appeal-
ing in theory, the practical challenges are difficult to
ignore. These challenges have prevented the widespread
adoption of risk factor–based policy portfolios among
asset owners. At the strategy (rather than policy) level,
some asset managers have incorporated risk factor
portfolio construction into hedge fund-type products,
including hedge fund beta replication.
Some of the practical challenges of constructing port-
folios with factors may be insurmountable.For one,no the-
oretical opportunity set encompasses all of the significant
factors.With asset classes,we can rely on the concept of the
complete market portfolio, even if some of the underlying
components, such as residential housing and human capi-
tal, fall outside our modeling ability. Another issue is that
many factors—even basics such as global GDP growth or
momentum—have poor investable proxies.
Another challenge and area for further research is
how to properly weight factors within a portfolio. With-
out a consensus on how to weight factors, many aca-
demic studies use equal weights—a naive but pragmatic
assumption also adopted in this study.
Frequent and attentive rebalancing is necessary to
maintain the desired factor exposures over time. Insti-
tutions wishing to pursue such asset allocations would
need the resources for nearly continuous rebalancing
(long and short), which is a far cry from standard quar-
terly or monthly rebalancing schedules. Additionally,
a policy implemented through factors may have 20 or
more exposures, each of which must be managed. Put-
ting it all together, a policy described through factors
resembles the global macro hedge fund style.
As previously demonstrated, we have the tools
to construct factor portfolios, including using MVO.
Forward-looking assumptions are hard to develop, how-
ever, because our example portfolios are best suited to
historical data.While some factors,such as GDP growth,
Exhibit 9. Optimized Factor Portfolio Comparisons
(periods ending 31 December 2011)
12. 12 ◆ WWW.CFAINSTITUTE.ORG
liability-matching strategy.The four categories are liabil-
ity hedge, capital preservation, capital growth, and real
assets. The factors of interest are economic growth, real
rates, inflation, duration, credit spread, private markets,
leverage, and manager skill. To create this portfolio, the
investor would begin by identifying the broad economic
roles and would then match the asset classes that fit those
roles. The risk factor classifications do not necessarily
apply to policy portfolio construction but are helpful in
identifying the allocation of risk during the process.
Derisking Factor-based approaches are conducive
to attenuating common sources of risk in traditional
portfolios—that is, derisking. For instance, the preva-
lence of risk stemming from equity can be reduced by
introducing factors such as those under the macroeco-
nomic and fixed income headings in Exhibit 5.Addition-
ally, one can readily incorporate liability-driven investing
(LDI) by treating the liability as an asset held short and
allocating appropriate weights to interest rate, duration,
inflation, credit spread, and other factors that mimic the
liability profile. Such an approach could also incorporate
Exhibit 12. Asset Allocation through a New Lens: Sample of Defined-Benefit Plan Viewed with Risk
Factors
Economic
Role Asset Class Target
Economic
Growth
Real
Interest
Rates Inflation Duration
Credit
Spread
Private
Markets Leverage
Manager
Skill
Liability Hedge 45%
U.S. Government Bonds
(Long Dur.)
14% ✓ ✓ ✓
U.S. Credit (Long Dur.) 31% ✓ ✓ ✓ ✓ ✓
Capital Preservation 5%
Cash 1% ✓
U.S. Government Bonds
(Int. Dur.)
4% ✓ ✓ ✓
Capital Growth 35%
Global Public Equity 25% ✓
Global Private Equity 6% ✓ ✓ ✓ ✓
Hedge Funds 4% ✓
Real Assets 15%
U.S. Private Real Estate 7% ✓ ✓ ✓ ✓ ✓
Commodities 4% ✓ ✓ ✓
Global Inflation-Linked
Bonds
4% ✓ ✓
Exhibit 11. Sample Groupings
ABSOLUTE
RETURN
Earn returns between
stocks and bonds
while attempting to
protect capital
Absolute return
hedge funds
FLIGHT TO
QUALITY
Protect capital in times
of market uncertainty
U.S. fixed income
Cash equivalents
INFLATION
LINKED
Support the purchasing
power of assets
Real estate and
real assets
TIPS
CAPITAL
ACCUMULATION
Grow assets
through relatively high
long-term returns
Global public equity
Private equity
14. 14 ◆ WWW.CFAINSTITUTE.ORG
by linking the silos encompassing each asset class struc-
ture so that multiasset cross-correlations are considered.
Next Steps in Asset Allocation Merely using risk,
return, and correlation forecasts is insufficient to create
robust portfolios. Better inputs that provide deeper port-
folio insights exist to guide our thinking about strategic
asset allocation.In the future,therefore,practitioners will
place more emphasis on understanding the reaction of
various portfolios to specific economic and capital mar-
ket outcomes, such as high or rapidly rising inflation,
flight to quality, liquidity events, and rapidly changing
interest rates or deflation. New techniques will aug-
ment traditional deterministic and stochastic forecast-
ing methods. Asset classes will be increasingly defined
by their expected reactions to the economic and capital
market environments. Liquidity will also be an explicit
consideration in strategic policy development and imple-
mentation.
CONCLUSION
Building pure factor-based portfolios is challenging and
largely impractical for most asset owners, but using fac-
tors to understand traditionally constructed portfolios
is possible and recommended. Factor approaches offer
immediate potentially beneficial applications. One of
these is enhancing the way we monitor exposures and
attribute risk on the level of asset classes and the level
of individual strategies; factors provide a useful way to
group traditional asset classes in macroeconomic buck-
ets. Simple insights, such as the relationship between
equity and credit, are reinforced by analyzing factors.
More complex interactions, such as those between
liability-hedging and return-seeking portfolios, can be
expressed with greater clarity through the lens of risk
factors. In a policy portfolio, many factor exposures are
already explicitly incorporated within manager structure
analysis (e.g., liquidity, leverage, duration, currency, size,
and momentum). For equity or fixed income portfolios,
factors can shed new light on the multifaceted relation-
ships between active strategies.
The application of risk factors to policy portfolio con-
struction is relatively new.Areas for further research include
identifying a set of significant factors, mapping this set
to investable instruments, developing a forward-looking
return forecasting methodology, and considering transac-
tion costs and other messy,but important,practical details.
N OTES
1 The Fama–French factor model was designed by Eugene Fama and
Kenneth French to describe stock returns (see Fama and French
1992). The traditional asset pricing model, the CAPM, uses only
one variable, beta, to describe the returns of a portfolio or stock
with the returns of the market as a whole.The Fama–French model
uses three variables. Fama and French observed that two classes of
stocks have tended to perform better than the market as a whole:
(1) small-cap stocks and (2) stocks with a high book-to-market
ratios—that is, value stocks (as opposed to growth stocks). They
added these two factors to the CAPM.
B IB LIOG RA PHY
Bender, J., R. Briand, and F. Nielsen. 2010. “Portfolio of
Risk Premia: A New Approach to Diversification.” Jour-
nal of Portfolio Management, vol. 36, no. 2 (Winter).
Exhibit 14. Bringing the Two Portfolios Together
Global Equity
Liability Hedge
Real Assets
Alts
Manager
Skill
Liquidity
Leverage
Default
Currency
Volatility
Inflation
vs. Duration Real Interest
Rates
GDP Growth