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Agenda Day 2

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Monday, March 14
8:00 a.m. – 9:00 a.m.
9:00 a.m. – 10:00 a.m.

Presenter(s): George Cooper

Is the rational, utility-maximizing ideal of homo economicus dead? If so, what is to replace him? Does behavioral finance offer the best alternative theory of economic behavior? What other approaches may provide more robust foundations for Economics?

Session Coordinator(s) Marc Groz

Facilitator(s)

10:15 a.m. – 11:30 a.m.

Presentation(s): View Presentation

Moderator(s): Larry Zhao, FSA, CERA, CFA, Ph.D.

Presenter(s): Robert Absey; Douglas Peebles; Larry Zhao, FSA, CERA, CFA, Ph.D.

The persistent low interest rates have created huge asset and liability mismatch problems because their long-term liability assumptions are much greater than the current market yields. As the higher yielding bonds mature and are replaced with lower yielding bonds, the book yield of the investment portfolio will be insufficient, and liabilities will grow due to carry.

 

Session Coordinator(s) Larry Zhao, FSA, CERA, CFA, Ph.D.

Facilitator(s)

Moderator(s): Sai-Cheog Chu

Presenter(s): Alex DeFeo; Robert Michaud

Formulating expected returns for asset class is the first step toward designing an asset allocation strategy toward reaching a specific risk/return target. Estimation errors in these return expectations dominate short term volatility risks. Yet Investment Advisors estimate a wide range of expected returns for similar asset classes. This session will help the audience understand the economic factors and assumptions which underlies for these differences.

Session Coordinator(s) Arnold Chu

Facilitator(s)

Presentation(s): View Presentation

Credits: 1.50 Noncore EA

Moderator(s): Thomas J. Egan Jr., FSA, EA, FCA

Presenter(s): Matthew Bale; Margaret G. McDonald, FSA, MAAA, FCA; Jeffrey G. Passmore, FSA, EA, CFA

Pension fund investments have experienced fundamental shifts with the introduction of risk management techniques, especially Liability Driven Investments (LDI). This session will discuss custom liability benchmarks and a present a framework for analyzing LDI risk. Various methods of managing risk will be presented with a description of the pros and cons of selecting a single approach. The approach to Pension Risk Transfer will be described with several examples of recent large transactions.

Session Coordinator(s) Thomas J. Egan Jr., FSA, EA, FCA

Facilitator(s)

11:45 a.m. – 1:00 p.m.

Presentation(s): View Presentation

Moderator(s): Matthew E. Blechner, FSA

Presenter(s): David Ryan O'Meara, ASA, CFA; William Rearden, ASA

Shiller's Cyclically Adjusted Price Earning (CAPE) of around 25 is well above the historical average of 16, and near the peaks of 32 and 44 observed in 1929 and 2000. This lofty price multiple begs the question whether the market is over valued. This session will address and illustrate 3 major tailwinds that justifies the current valuations. First, projected economic growth for the United States during 2016 is expected to be above trend growth. Second, earnings growth continues to average above 9 percent with projected earnings of 11 percent over the next 5 years. Finally the major drivers of the S&P 500, the 10 companies that make up close to 20 percent of the index, are trading at P/E multiples that are near or below the index average. In addition to tailwinds, the session will address a few major headwinds that limits the valuation multiple from further trending upward. First, predicting stock prices is inherently difficult; however, historically a CAPE of around 25 would statistically predict negative real growth in stock prices over the next ten years. Second, the session will address some uncertainties surrounding the unwinding of never seen before accommodative monetary policy. Finally, there is strong correlation between demographic patterns and equity values that predict price earnings multiples could dip below 10 by 2025. How to remain proactive: 1. Monitor economic data: The 1929 crash was precipitated by economic data that signaled a coming recession, which directly affected expectations of earnings growth, and hence lofty valuations. 2. Psychology and behavior plays a big role in the markets: In the fall of 1987 markets trended down on investors' belief the markets were overvalued; followed by the crash on October 19 as buyers continued to wait for signs of a trend reversal. 3. Determine whether the fundamentals are clear: Bubbles manifest when fundamentals become difficult to asses. The highly accommodative monetary policy, since the financial crisis, may have clouded fundamentals by artificially protecting investors from downside market risks.  

Session Coordinator(s) Matthew E Blechner, FSA

Facilitator(s)

Moderator(s): Dan diBartolomeo

Presenter(s): Roger Stein

Funding for pharmaceutical research is currently highly constrained as major pharma companies focus on distribution and marketing of existing compounds rather than primary research. Conventional venture funding is insufficient as drug research is orders of magnitude more costly than a typical tech start-up. The RBO is new financial instrument which offers competitive returns with investment grade safety while providing a natural hedge against mortality risk and medical reimbursement risk for insurers.

Session Coordinator(s) Dan diBartolomeo

Facilitator(s)

Presentation(s): View Presentations

Moderator(s): Ken Griffin, ASA, MAAA

Presenter(s): Sean George Kurian, FSA, FIA; Weiwei (Walter) Wang, FSA, CERA

What is the best asset mix for an insurance company vs an LDI strategy? How is risk tolerance defined? What are the right metrics for assessing portfolios? We will explore approaches to optimizing portfolios through long-term strategic asset allocation, as well as asset benchmarking and asset-liability matching.

Session Coordinator(s) Ken Griffin, ASA, MAAA

Facilitator(s)

1:15 p.m. – 2:30 p.m.

Presenter(s): David Chaves

This session encompasses the FBI and SEC's seminal and sweeping investigation into insider trading conduct in the hedge fund industry as well as collusion with expert networks.  The presentation provides an understanding of how the FBI became involved, case studies, compliance best practices, cyber threats, use of sophisticated techniques (wire taps/undercover operations), and recruitment of cooperators.

 

Session Coordinator(s) Marc Groz

Facilitator(s)

2:45 p.m. – 4:00 p.m.

Moderator(s): Frank Zhang, FSA, MAAA

Presenter(s): Mark Anthony Hadley, FSA; Oksana Cherniavsky, Ph.D.

There are two paradigms for basis risk management: minimize everywhere and cap tracking errors to the hedge-able indices, or alternatively balance the tracking error with diversification in alternative asset classes for stable hedging programs. We will compare and contrast the pros and cons of these different approaches.

Session Coordinator(s) Frank Zhang, FSA, MAAA

Facilitator(s)

Moderator(s): Marc Groz

Presenter(s): Mike Huff; Marc Groz

Value, also known as "Utility", is a central concern of economics and finance, yet it can be extremely difficult to define and measure accurately. Intangible assets and liabilities are notoriously difficult to measure, yet that is where a lot of value (and risk) resides. Knightian Uncertainty encompasses those risks that are either so poorly understood, hard to observe, and even harder to measure that we segregate them from the rest of the risk universe.

We will look at the nonlinear, nonscalar aspects of value/utility, describe a new technique for reducing measurement errors, and offer a novel approach to measuring Knightian Uncertainty, a heretofore unmeasurable quantity.

Session Coordinator(s) Marc Groz

Facilitator(s)

2:45 p.m. – 5:30 p.m.

Presentation(s): View Presentation

Credits: 3.30 Noncore EA

Moderator(s): Brett Brooks Dutton, FSA, MAAA, EA, MSPA; R. Evan Inglis, FSA, MAAA, FCA

Presenter(s): Edward Bartholomew; Christopher DeMeo, FSA; Dan diBartolomeo; Justin Cecil Harvey, ASA, MAAA; R. Evan Inglis, FSA, MAAA, FCA; Gordon John Latter, FSA, MAAA; John Minahan; Timothy Price, CFA

 

This participatory seminar will include presentations of new ideas about public pension investment strategies focused on risk management. Liability-aware approaches will be emphasized. We will set the stage with background on current practices and then proceed to introduce a handful of ideas about new approaches leaving plenty of time for discussion and debate about the merits of both the current investment paradigm and the new ideas. This seminar, covering the time slots for two concurrent sessions at the Investment Symposium, is available to symposium attendees and to others who choose to register only for this seminar.

 

Session Coordinator(s) R. Evan Inglis, FSA, MAAA, FCA

Facilitator(s)

4:15 p.m. – 5:30 p.m.

Moderator(s): Ken Griffin, ASA, MAAA

Presenter(s): Hal Warren Pedersen, ASA, Ph.D.; Stephen G. Smith, FSA, MAAA

This session is intended for actuaries and those who manage interest-sensitive assets and liabilities. The session will focus on the topics of duration and ESG modelling. In the duration context, a common problem arises when constructing a negative parallel shock scenario where short rates are lower than the intended shock (e.g., a 50bps or 100bps shock may send the short end of the curve into negative territory). This is dealt with in varying ways by practitioners. Some practitioners simply floor down-shocks at zero, others will also limit the up-shocks to maintain symmetry, some prefer proportional shocks rather than parallel shocks, and yet others lean on PCA. This session will explore these and other common practices, examining strengths and weaknesses of each approach. A new and unique solution will be proposed. In the ESG context, a broad range of modeling issues are associated with low interest rates. Recent market behavior such as negative interest rates, significantly higher rate volatility at longer tenors versus shorter tenors and extended periods of persistent low rates place tremendous tension on neoclassical interest rate model. We will examine these empirical issues and provide some examples of model classes that can be used in today's low rate world.

Session Coordinator(s) Larry Zhao, FSA, CERA

Facilitator(s)

Moderator(s): Aaron Liebhaber

Presenter(s): Oscar Bleetstein; Robin Brooks; Remy Marino

Globalization of both the real economy and financial markets has led to the increasing importance of currency and commodity markets to investors. The session will discuss whether broad, passive participation in both currency and commodity markets are attractive ways to diversify asset owner portfolios, or whether these exposures are introducing sources of risk not compensated by a return premium. In addition, the topic will cover the extent to which the current trends in commodity prices and exchange rates are being driven by developments in specific regions, such as China; as well as potential opportunities that currently exist or could arise in the future.

Session Coordinator(s) Allan Mark Levin, FSA, FIA, MAAA

Facilitator(s)

6:00 p.m. – 7:00 p.m.
Tuesday, March 15
10:30 a.m. – 10:45 a.m.