2014 Investment Symposium

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Track Legend

  • R - Retirement/Pension
  • P - Portfolio Management
  • Q - Quantitative, Risk Management and ALM
  • E - Economics, Accounting & Regulations

Thursday, March 13
7:00-8:00 a.m.
Registration/Continental Breakfast
7:45-8:45 a.m.

Audio Link: Purchase Audio

Presenter(s): Edward L. Toy, NAIC

Experience Level: All

Session Coordinator(s): Inigo Bengoechea

8:45-9:00 a.m.
Refreshment Break
9:00-10:15 a.m.

Presentation(s): View Presentation

Audio Link: Purchase Audio

Presenter(s): Meir Statman

Portfolio theory is about construction of portfolios from investments such as stocks and bonds for goals such as retirement income and bequest. Mean-variance portfolio theory is a construction theory. It provides the tools necessary for the construction of mean-variance portfolios to investors who care only about the expected return of their portfolio and its risk. But what goals do mean-variance investors have for the money in their portfolios? Behavioral portfolio theory is both a construction and goals theory. It begins with investors’ goals which determine the construction of portfolios.

Life cycle theory, complementing portfolio theory, is about accumulation into portfolios such as by saving during working years and decumulation from portfolios such as by spending during retirement. Standard life-cycle theory is centered on the hypothesis that people arrange their saving and spending so as to smooth their spending during their life-cycle. Behavioral life-cycle theory is centered on the hypothesis that behavioral considerations lead people away from smoothing their spending during their life-cycle.

Experience Level: All

Session Coordinator(s): Mark Abbott

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Competency: Strategic Insight and Integration

Moderator(s): David Cantor, ASA, EA, MAAA

Presenter(s): Don Tunnell; Robert Fuhrman

Smart beta is a term used more frequently in the investment world today. However a strict definition is elusive. It is probably best described as an umbrella term for rules based investment strategies that do not use the conventional market capitalisation weights. Such weights have been criticised for delivering sub-optimal returns by overweighting overvalued assets and, conversely, underweighting undervalued ones. This session will provide an introduction to Smart Beta/Alternative Beta, providing a broad overview of the space and the evolution of understanding the risk factors that drive portfolio performance. The presentation will touch upon how clients can use risk factors to help assess investment strategies and build more diversified portfolios.

Experience Level: Intermediate

Session Coordinator(s): Erik Troutman

Presentation(s): View Presentation

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Moderator(s): Brett Dutton, FSA, MAAA, EA, MSPA; Martin Belanger, FSA, FCIA

Presenter(s): Don Ezra, FIA

The low interest rate environment that prevails nowadays has contributed to reduce the attractiveness of life annuities among investors. Despite their lower payout, life annuities still offer appealing features for investors looking to manage longevity risk. This session will describe the mechanics of life annuities and how investors can optimize their retirement portfolios by including them.  

Session Coordinator(s): Martin Belanger, FSA, FCIA

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Competency: Strategic Insight and Integration

Moderator(s): Allan Levin, FSA, FIA, MAAA

Presenter(s): Nathan Zahm, FSA, EA, ACA

Using standard GAAP insurance company accounting standards, the US is fast approaching a $100 trillion deficit. The Federal Reserve’s balance sheet has gone from less than $1 trillion to almost $10 trillion since the economic crisis of 2008 and continues to increase at close to $100 billion per month. This is the elephant in the room that most people would rather ignore than talk about. However, in terms of significant risk factors for the life insurance industry, it is hard to imagine anything more significant. What do actuaries think of this issue, and how are we advising our clients about ways to protect themselves?

This panel will examine both “solutions” to the fiscal crisis and try to provide a list of potential products and investment strategies which the life insurance industry can develop and deploy to partially protect themselves against either of these inevitable outcomes.

Experience Level: Intermediate

Session Coordinator(s): Erik Troutman

10:15-10:45 a.m.
Refreshment Break
10:45 a.m.-12:00 p.m.

Presentation(s): View Presentation

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Moderator(s): Brett Dutton, FSA, MAAA, EA, MSPA ; Martin Belanger, FSA, FCIA

Presenter(s): Edward Qian, Ph.D., CFA

Risk Parity is an investment concept that promotes true portfolio diversification. Risk Parity seeks to deliver stable returns by capturing risk premiums or expected returns using an approach that balances risk across and/or within a broad array of complementary asset classes. From a fundamental perspective, Risk Parity diversifies a portfolio’s exposures across the dimensions of risk that exert the greatest influence on its performance. From a quantitative perspective, it allocates risk to sources of risk premia based on their expected risk-adjusted returns. Consequently, we believe Risk Parity can be applied to a variety of investment portfolios to greatly improve overall portfolio efficiency which, we believe, contributes to higher risk-adjusted returns and greater wealth creation over time. 

Session Coordinator(s): Martin Belanger, FSA, FCIA

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Moderator(s): Marc Groz

Presenter(s): Nancy Davis; Justin Mitchell; Braxton Mckee

Everybody talks about innovation, but what are the practical implications for managers, investors, and fiduciaries? Financial innovation can be highly quantitative in nature. We will look at several recent financial innovations to shed light on the current landscape, including: Bitcoin and other “alternative currencies” have emerged from obscurity to global attention, capturing the imagination of millions as well as the attention of critics and regulators. Diversative TM financial instruments, invented several years before the financial crisis and recently patented, are designed to increase the risk-adjusted return of investment portfolios especially during times of financial crisis. Volatility as an asset class; and pave an innovative approach to investing in talented individuals. 

Session Coordinator(s): Marc Groz

Presentation(s): View Presentation

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Competency: Strategic Insight and Integration

Moderator(s): Ming Chiu, FSA, MAAA

Presenter(s): Eric Pedde MBA, CFA; Richard Meagher, CFA

Alternatives derive their returns from one or more of the following: non-traditional asset class exposure (e.g., commodities, real estate, frontier markets); non-traditional techniques, tools, flexibility (e.g., shorting, leverage, derivatives) used to express manager insights; and premiums associated with illiquidity (e.g., private equity). The rationale for investing is the diversification benefits versus traditional asset classes (stocks, bonds, cash) and attractive return opportunities relative to traditional investments. This session will discuss the use of alternatives in various institutional investor portfolios and assess the benefits and pitfalls. 

Experience Level: Intermediate

Session Coordinator(s): Erik Troutman; Martin Belanger, FSA, FCIA

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Competency: Technical Skills & Analytical Problem Solving

Moderator(s): David Bell, FSA, EA

Presenter(s): Aditi Banerjee; Peter Winslow

This session will explore the tax implications of asset rebalancing and hedging, including how the rebalancing or hedge is implemented in practice. It will also cover upcoming legislative and regulatory proposals on this topic 

Experience Level: All

Session Coordinator(s): David Schraub, FSA, CERA, MAAA, AQ

12:00-1:45 p.m.

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Credits: 75 minutes Noncore EA

Presenter(s): Robert C. Merton, Ph.D.

There are significant challenges including financial illiteracy in adequately managing DC for core retirement funding. Nobel Lauriate Robert C. Merton, Ph.D. will share his current thinking, concerns and challenges regarding most individuals' managing DC for their core retirement funding. Few people are really specialists in managing retirement funding and most do not have or cannot afford a financial advisor. The decline of Defined Benefit plans means that DC is now a major part of most employer provided retirement benefits and not just some supplemental extra so that ultimately individuals without the necessary expertise are now responsible for what happens to their DC planning for their eventual retirement funding.

• The continuing trend from defined-benefit toward defined-contribution plans to fund employer-provided core retirement benefits is asking more individuals to make complex financial management decisions that they have not had to make in the past and that, for the most part, they are not adequately prepared to make now or in the future, even with attempts at retirement finance education.

• Typical DC information and products tend to present these decisions in frameworks that make them difficult for individuals—even those who are generally well educated—to resolve and act on.

• Typical DC information and products are not designed with specified goals and those they do, such as “the number”, express those goals in terms of wealth, which is the wrong measure for retirement goals that are properly expressed in terms of income. Therefore retirement funding risk is also measured incorrectly.

• DC and securities regulation for required disclosures are focused on the value of the portfolio instead of the amount of retirement income it could purchase, which contributes to distorted communication of what is important to plan participants and can even “force” the taking of unnecessary income risks in the name of reducing wealth risk.

• Target date funds based on age alone are wholly inadequate to address these challenges. They do not express goals. In setting allocations, they measure risk in terms of wealth and not income volatility. Age is too crude a measure for determining a proper pool for a common investment allocation.

Experience Level: All

Session Coordinator(s): Mark Abbott

2:00-3:00 p.m.

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Competency: Technical Skills & Analytical Problem Solving

Moderator(s): Martin Belanger, FSA, FCIA

Presenter(s): Vineer Bhansali, Ph.D.

In the past few decades investors have had to deal with many so-called “Black Swan Events” that should only occur once in a lifetime. This has prompted investors to find ways protect their portfolio against these outlier occurrences. The current bull market and its low volatility may lead some investors to believe that tail risk has gone away. This session will describe what tail risk is and how to protect a portfolio against it. 

Experience Level: All

Session Coordinator(s): Martin Belanger FSA, FCIA

Presentation(s): View Presentation

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Presenter(s): Zahid Hussain, FSA, MAAA; Takeko Uemoto, FSA, MAAA

We are at a critical point of market environment. Interest rates stay low and there is potential to increase at uncertain future time. Many companies find it challenging to manage to both their theoretical ALM guidelines and expected views. The speakers will discuss potential actions in both strategic asset alllocation and liability management. 

Experience Level: All

Session Coordinator(s): Frank Zhang, FSA, MAAA

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Credits: 60 minutes Noncore EA

Presenter(s): Robert C. Merton, Ph.D.

Nobel Lauriate Robert C. Merton, Ph.D. will share his current thinking for assisting individuals' managing their DC plans for their core retirement funding despite significant challenges including financial illiteracy and the demise of defined benefit safety nets. There are too few people are really specialists in managing retirement funding and most individuals do not have or cannot afford a financial advisor to manage the DC plans that are now a major part of most employer provided retirement benefits. How can companies help adequately guide individuals who lack the necessary expertise but are now responsible for what happens to their DC planning for their eventual retirement funding? Dr. Merton will offer some suggestions for possible solutions to this dilemma for most DC plan participants.

A well-designed DC plan solution for core retirement funding:

  • targets inflation-protected income at retirement, not wealth accumulation, as the goal 
  • offers goals individually customized for each participant, based on salary, age, and gender
  • employs robust, scalable, low-cost goal-based investment strategies that integrate all sources of retirement-dedicated assets including future contributions, to maximize the chances of achieving the retirement income goal.
  • manages the risk of not achieving the goal: namely retirement income shortfall risk. .
  • functions effectively as a default for individuals who never engage 
  • provides participants who do engage with only meaningful information and choices with easy implementation, focused on improving the chances of achieving their income goal 
  • Offers seamless transition at retirement from accumulation phase to post-retirement draw-down phase with flexible pay-out options including integration with reverse mortgage  

Experience Level: All

Session Coordinator(s): Mark Abbott

Audio Link: Purchase Audio

Moderator(s): Paul DeCrane

Presenter(s): Jason Kehrberg, FSA, MAAA; Michael Lockerman, FSA, MAAA

This session will explore two asset-related developments in the financial modeling world. The first is asset modeling required under principle-based reserves (PBR) and capital, particularly VM-20. The second development is the potential ALM impacts in GAAP and IFRS accounting due to the current Insurance Contracts exposure drafts. At the conclusion of the session attendees will be able to describe the scope and basic requirements of asset modeling required under PBR, and have a basic understanding of the ALM issues both solved and introduced by the Insurance Contracts exposure drafts.

Experience Level: All

Session Coordinator(s): David Schraub, FSA, CERA, MAAA, AQ

3:00-3:30 p.m.
Refreshment Break
3:30-4:30 p.m.

Presentation(s): View Presentation

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Presenter(s): Vitali Kalesnik; P. Brett Hammond

This session will discuss innovations in index strategies and some extrordinary research into index performance. Recent index literature is replete with innovations based on quantitative strategies that are predicated on sensible investment beliefs. Empirical studies confirm that these strategies deliver economically large and statistically significant excess returns over cap-weighted market benchmarks in nearly all regions and countries, over long periods of time. Surprisingly, doing the opposite of these portfolio construction algorithms does not reverse the outperformance. Indeed, the “upside-down” strategies often outperform the originals. This paradoxical result is driven by the phenomenon that seemingly unrelated and non-value-based strategies and their inverted counterparts often have unintended and almost unavoidable value and small-cap tilts. Risk premia indices and factor-based allocations using indices will also be discussed. 

Experience Level: All

Session Coordinator(s): Mark Abbott

Presentation(s): View Presentation

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Presenter(s): Richard Michaud

Richard Michaud will review many advances in portfolio management and risk management over the past several decades. Dick will share portfolio construction techniques as well as portfolio management processes that provide desired expected risk/return portfolio profiles. Often, critical when-to-trade decision is based on suboptimal calendar and range trading rules. We present two resampling-based algorithms defining a need-to-trade probability relative to overlapping data and inequality constrained Michaud optimization conditional on manager styles, mandates and objectives. The method may allow large-scale continuous automatable non-calendar based portfolio monitoring as well as interesting applications beyond finance.

Session Coordinator(s): Mark Abbott

Audio Link: Purchase Audio

Presenter(s): Timothy Blake; Jim Schwartz

Session Coordinator(s): Navin Sharma

Presentation(s): View Presentation

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Moderator(s): Symeon Williams, FSA

Presenter(s): Lucy V. Lillycrop and Salvatore Volpe

A look at accounting changes that will impact insurance and pension investing. 

Session Coordinator(s): Inigo Bengoechea

4:30-4:45 p.m.
4:45-6:00 p.m.

Audio Link: Purchase Audio

Moderator(s): Martin Belanger, FSA, FCIA

Presenter(s): Robert Cultraro, CFA, CAIA; Seth Masters; David Brown

We are truly living in unprecedented times, from a financial markets point of view. Central banks have tried to stimulate the economy by maintaining interest rates at artificially low levels. This stimulus has had a disastrous impact investors relying on fixed income securities: insurance companies cannot generate enough income from their bond portfolios, pension plans are facing larger deficits and individual investors caught in the wave of conversions from defined benefits to defined contributions pension plans are struggling generate adequate retirement income. A panel of Chief Investment Officers from the insurance, pension and wealth management industries will discuss how the sluggish rate of return environment is impacting their investment policies and asset-liability matching decisions. 

Experience Level: All

Session Coordinator(s): Martin Belanger, FSA, FCIA

6:00-6:15 p.m.
Meet the President within the Reception
6:00-7:30 p.m.
Reception

Back

Legend

Communication

Demonstrating the listening, writing and speaking skills required to effectively address diverse technical and nontechnical audiences in both formal and informal settings.

Professional Values

Adhering to standards of professional conduct and practice where all business interactions are based on a foundation of integrity, honesty and impartiality.

External Forces & Industry Knowledge

Identifying and incorporating the implications of economic, social, regulatory, geo-political and business changes into the design and delivery of actuarial solutions.

Leadership

Initiating, innovating, inspiring, creating or otherwise acting to influence others regardless of level or role toward a common goal.

Relationship Management & Interpersonal Collaboration

Creating mutually beneficial relationships and work processes toward a common goal.

Technical Skills & Analytical Problem Solving

Applying the actuarial knowledge, skills and judgment required to provide value-added services.

Strategic Insight & Integration

Anticipating trends and strategically aligning actuarial practice with broader organizational business goals.

Results-Oriented Solutions

Providing effective problem solving that addresses relevant interests and needs.