Presented by Emilian Belev, CFA, ARPM
Head Enterprise Risk Analytics, Northfield Information Services Inc.
Wednesday, April 30, 2014 at 12 pm US Eastern Time
The rigorous risk analysis of illiquid investments like real estate and infrastructure alongside publicly traded investments in an ERM setting has been an object of many attempts, with little practical success until now. This presentation will outline the details of a new risk model designed for this task. The model is based in the philosophy of breaking complex investments down to their elemental pieces, and intuitively reassembling them into a coherent whole, using a general risk factor framework. The immediate benefits of this approach are two: a) it enables the rigorous risk measurement and estimation of the relevant factor exposures of investments with unobservable price time series, and b) it allows the seamless integration of measured risks of liquid and illiquid investments. We present evidence supporting the model results, and share the actual experience of a large scale implementation at a major pension fund.
In particular, we will focus on the following issues:
- The practical challenges of illiquid investments to risk management
- The elements of illiquid investment risk
- Identifying appropriate risk drivers for each of those risk constituents
- Finding appropriate observable real world measures for the success of a model of the unobservable
- The practical implications of setting up such a model in the investment process
The presentation is well suited for Investment Officers, ERM professionals, long term investors, asset managers, senior real estate and infrastructure research staff, as well as academics.