Institutional investors better fine-tune their multitasking capabilities.
“The next generation of best practice for enhancing returns involves pursuing several paths in parallel, instead of embracing one idea,” Antti Ilmanen, a portfolio manager at global macro hedge fund Brevan Howard Asset Management LLP, London, wrote in a forthcoming book, “Expected Returns.”
Timing investments based on valuations, using leverage and looking beyond allocations based on asset class are tools all institutional investors should consider implementing, Mr. Ilmanen states in the book.
Mr. Ilmanen has pulled together the leading thinking on how long-horizon investors can harvest top returns from diverse risk premiums that vary over time, making the book a must-read for officials at sovereign wealth funds and large pension funds, say industry experts who've previewed the book.
“This is a marvelous collection of knowledge from financial theory, empirical research and the understanding of investment subjects, all bound together in a way that will bring knowledge and understanding to pension funds,” said Knut N. Kjaer, CEO of financial advisory firm GCapm, Oslo. Mr. Kjaer was the founding CEO of Norges Bank Investment Management, which runs the assets of the 3.1 trillion Norwegian kroner ($525.8 billion) Government Pension Fund-Global, also of Oslo.
Regarding Mr. Ilmanen's thesis, which urges that investors understand asset allocation in terms of strategy style and risk-factor return drivers, Elroy Dimson, emeritus professor of finance at London Business School, said: “We don't know an awful lot about these risk premiums ... so one wants (to invest in) a number of them. It's a matter of getting a diversified exposure to risk premiums.”
Mr. Kjaer added: “We don't have any choice; we have to go in that direction” of understanding returns in terms of strategy styles and risk factors. “We have learned from the global financial crisis that the traditional way of diversifying portfolios doesn't work.”