A Simple Approach to the Management of Endowments
Hossein Kazemi
Hedge Fund Investment Philosophy
Kostas Iordanidis, KI Capital GmbH

Hedge funds are vehicles that invest in different asset classes in a flexible and unregulated way. Contrary to popular perception, hedge funds are not a separate asset class like equities, government bonds or commodities. Hedge funds are heterogeneous and diverse. Even hedge funds that invest in the same asset class and follow similar investment strategies exhibit large differences in behavior over time. As a result, most (but not all) academic and practitioner studies of aggregate hedge fund performance and risk taking are deeply flawed and meaningless. This article examines the importance of manager selection and portfolio construction within a hedge fund framework.

The Effects of Responsible Investment: Financial Returns, Risk Reduction and Impact
Jonathan Harris, ET Index Research

This report focuses on answering several key questions for responsible investors by constructing an equilibrium model of the financial economy in which active neutral investors (with no knowledge or regard for environmental risk) and active responsible investors (who take environmental risk into account) bid for shares in companies with varying levels of environmental risk. The companies in turn are able to pay a cost to reduce their environmental risk. Companies choose the amount of reduction that they pay for so as to maximize their share price, as determined by demand for their shares from the active investors. Note that while environmental risk is the subject of this report, the results apply equally well to any extra-financial risk that may be considered by responsible investors.

Equity Markets Valuation Using CAPE
Rémy Estran, CAIA, MPG Partners and Olivier Jéséquel, CAIA, bfinance

When it comes to global equity portfolio allocations, relative stock market valuations are one of the most critical factors that influence investors’ decision-making. “Are stocks undervalued or overvalued?” is an old and ongoing debate among financial market participants. This question is of the utmost importance given its considerable investment implications. One approach to addressing the issue of determining whether the stock market is relatively cheap or expensive, is to use the Cyclically Adjusted Price-Earnings ratio (CAPE), a measure developed by the Nobel Prize-winning economist Robert Shiller of Yale University and his former colleague Prof. John Campbell. In this paper, we first discuss the pros and cons of using this indicator as a market timing tool, we analyze what current valuations say about expected stock returns, and then we provide CAPE measures for the US and European equity markets.

ESG in Infrastructure
Abigail Beach, EMPEA

In infrastructure investing environmental, social and governance (ESG) issues remain critical considerations for practitioners given the long-term time horizon and often relatively significant financial investment required. During the first half of 2016 US$1.8 billion of capital was invested in infrastructure and real assets in emerging markets. ESG considerations and best practices evolve as capital is continually raised and deployed across the asset class. Relative to other asset classes such as private equity, infrastructure investing is comprised of a complex and nuanced mix of ESG factors including land acquisition, resettlement, community engagement and environmental impact. These complexities are explored in this report as well as the types of risks, considerations and priorities that influence a firms ESG management system for infrastructure investing.

Shifting Australia's Infrastructure Mindset to the Long Game
Garry Bowditch & Gordon Noble, Better Infrastructure Initiative and Glenn Maguire, 4Sight One

Infrastructure has always had to deal with the short-term politics of the day, and the long-term welfare of the community the infrastructure will serve. Resolving these inevitable tensions transparently and holistically is a true litmus test of what separates good governance of society from the rest.

Apart from the obvious impact of ‘pork barrelling’ where political expediency can result in sponsoring the wrong projects, at the wrong time and place, there is also a deeper and more systemic factor at play concerning the choices a society can make about its possible futures. Building big and solid infrastructure may have its place, but flexibility of function and being fit for purpose over its long economic life is fundamental to its continued relevance and value to society.

Yet governments and their institutions that are entrusted with the custodianship of planning and managing infrastructure are less often associated with championing agility and flexibility. The willingness to acknowledge and deal with high uncertainty and its consequences in the future is an area of focus in this report.

This Policy Outlook Paper No. 2, builds on the importance of customer-led infrastructure as a catalyst for purposeful and disciplined investment in new assets and networks, along with enhancement of the existing ones.

Brexit and it's Impact on Cross-Border Activity in Europe
Marianne Scordel, Bougeville Consulting

In the aftermath of the Brexit vote, this article explores what may happen in the field of financial services in general, and hedge funds in particular. The U.K. has so far been part of the European Union, and, as such, has been bounded by laws and regulations applicable across borders. That situation will change as the result of the vote, however it is not sure yet what direction the new pan-European regulatory framework may take. This is particularly relevant as far as the “passporting” of financial services is concerned – a process through which the selling and managing of financial services are currently allowed to operate across the EU to some extent as if the jurisdiction as a whole were a single country. The article suggests various possibilities, which include the establishment of certain links by the U.K., both with the EU and with third countries (e.g. the U.S.) to allow some form of relative free-trade once the U.K. formally left the EU. The new arrangements may prove more difficult in the context of a recently-implemented European Directive targeting hedge funds.

Challenging Pension Funds Model Portoflios with LPE
Simone Hollenwaeger, CAIA

In times of low yields, institutional investors such as pension funds search for higher returns while maintaining investment constraints. Listed private equity (LPE) holds investments in private companies similar to limited partnerships but are stock exchange listed vehicles, hence liquid as a regular stock. This paper investigates the potential benefits of listed private equity in a pension fund’s portfolio when confronted with law provisions on asset classes and weights.

A Review of Term Structure Estimation Methods
Sanjay Nawalkha, Isenberg School of Management and Gloria M. Soto, University of Muricia

The term structure of interest rates can be defined as the relationship between the yield on an investment and the term to maturity of the investment. Many alternative assets such as real estate, private equity, and hedge fund investments are illiquid with long-term cash flows, without a readily available source for market prices. Thus, a properly estimated term structure of interest rates is essential for obtaining the intrinsic values of these assets. Due to the non-linear convex relationship between asset prices and interest rates, any errors in the estimation of interest rates in a low-yield environment have a larger impact on the intrinsic valuation of these assets. Thus, an accurate estimation of the term structure of interest rates assumes even greater importance in the current low-yield environment with a yield around 1% on the short end, and a 3% yield on the 30-year Treasury bond. Moreover, the TSIR is also relevant for macroeconomic forecasts of short-term rates, and implementation of monetary policy and debt policy by governments.

Can Non-Accredited Investors Find and Invest in the Next Unicorn
Marlin R.H. Jensen, Auburn University, Harbert College of Business, Beverly B. Marshall, Auburn University, Harbert College of Business, and John S. Jahera, Jr., Auburn University, Harbert College of Business

On October 30, 2015 the SEC finalized the rules for securities crowdfunding under Title III of The Jumpstart Our Business Startups (JOBS) Act of 2012. Since the spring of 2016, all investors have had the ability to invest in startup companies through registered online intermediaries known as crowdfunding portals and broker-dealer offering platforms. We estimate the performance of 144 private firms listed in the Wall Street Journal to see whether non-accredited investors should have an interest in investing in private companies through the new platforms. We then explore which investor groups have had the most success in investing in the 144 private firms and discuss whether non-accredited investors can have similar success.