# Asset Management at LBS

Data: 11-01-2025 21:53:52

## Lista de Vídeos

1. [AQR LBS Congregation 2017 - David Kabiller | London Business School](https://www.youtube.com/watch?v=iNnQLyjAnvA)
2. [Greek Prime Minister Alexis Tsipras | London Business School](https://www.youtube.com/watch?v=RCP1Ia-xWRk)
3. [Monitoring financial stability along active monetary policies | London Business School](https://www.youtube.com/watch?v=wwaYi_cMJHY)
4. [Discussion on Asset Managers and Systemic Risk | London Business School](https://www.youtube.com/watch?v=yN8de7rdVpk)
5. [Discussion on ETFs, Liquidity, Leverage and Financial Fragility](https://www.youtube.com/watch?v=spqK9Unwr_g)
6. [Insurance supervision at the PRA](https://www.youtube.com/watch?v=Vtw43uwIzjA)
7. [MiF Global Business Experience: New York & Boston | London Business School](https://www.youtube.com/watch?v=8VDf8LLQgiA)
8. [MBA Global Business Experience: New York & Boston | London Business School](https://www.youtube.com/watch?v=GBO80FTSNJE)
9. [The Rise of Alternative Investments](https://www.youtube.com/watch?v=FpJdqc0Iotg)
10. [Regulation in Asset Management | London Business School](https://www.youtube.com/watch?v=4Xwz9Wi9USc)
11. [What is the Equity Investment programme - London Business School](https://www.youtube.com/watch?v=vHbVm0zGjHE)
12. [Fintech Insights Weekend | London Business School](https://www.youtube.com/watch?v=g7QZ8QOg_MM)
13. [London Business School FinTech Conference: Susan Athey, The Stanford Graduate School of Business](https://www.youtube.com/watch?v=Y5MgQnDCCYk)
14. [London Business School FinTech Conference: John Plender, Senior Editor, Financial Times](https://www.youtube.com/watch?v=i3vLTFatrMg)
15. [London Business School FinTech Conference: Lucrezia Reichlin, Professor of Economics](https://www.youtube.com/watch?v=bhOqAU49IRE)
16. [London Business School FinTech Conference: Andy Haldane, Bank of England](https://www.youtube.com/watch?v=G8T20YLC9nY)
17. [What can asset managers and regulators do to improve liquidity? | London Business School](https://www.youtube.com/watch?v=lvufKaXxDFo)
18. [Why is liquidity so important to investors? | London Business School](https://www.youtube.com/watch?v=_QEewmsA97w)
19. [Introducing the AQR Asset Management Institute | London Business School](https://www.youtube.com/watch?v=Zfh0x_xDAmg)
20. [What are the key implications of liquidity for investors and regulators? | London Business School](https://www.youtube.com/watch?v=FXZlKKciOQ0)
21. [Hélène Rey, JEEA-FBBVA Lecture Interview 2016](https://www.youtube.com/watch?v=ZHn6x_eZk-o)
22. [Hélène Rey, JEEA-FBBVA Lecture 2016 "Monetary Policy With Large Financial Flows"](https://www.youtube.com/watch?v=qvHC-_pRvWc)
23. [Ralph Koijen - Insurance, Real Estate and Household Finance | Vox Views](https://www.youtube.com/watch?v=jyBiuh9E890)
24. [Strategic Investment Management | London Business School](https://www.youtube.com/watch?v=q3j6rhMpnMk)
25. [Excellence in Teaching Award to Professor Francisco Gomes](https://www.youtube.com/watch?v=msjiArx4AeE)
26. [Webinar: The art of Investing and Manager Selection | London Business School](https://www.youtube.com/watch?v=AfD_6UHyRjs)
27. [Faculty lecture: What should I do with my money? | London Business School](https://www.youtube.com/watch?v=xEIAOaCPWrk)
28. [Philip Hoffman: How we built the largest art investment firm| London Business School](https://www.youtube.com/watch?v=8miCdp8-xJU)
29. [The Costs and Benefits of International Financial Integration - RES 2014](https://www.youtube.com/watch?v=OWmFf5G3yZk)
30. [Why responsible investment makes sense in financial management | London Business School](https://www.youtube.com/watch?v=AQJLwEGnkiA)
31. [The future of private banking | London Business School](https://www.youtube.com/watch?v=s86vMLc9khY)
32. [What does ethical investment look like? | London Business School](https://www.youtube.com/watch?v=TSKoNy1lxnQ)
33. [Stephen Schaefer: Can Bank Boards Do The Job? | London Business School](https://www.youtube.com/watch?v=-JffnAYLSDM)
34. [11 Private Equity Findings Symposium Panellist Stephen Schaefer](https://www.youtube.com/watch?v=P83T2HtioZI)
35. [Prof Naik, Director Hedge Fund Research Centre,  London Business School on "Blue Chip" Hedge Funds 2](https://www.youtube.com/watch?v=N-uZU3ihfvc)
36. [Prof Naik, Director Hedge Fund Research Centre,  London Business School on "Blue Chip" Hedge Funds 1](https://www.youtube.com/watch?v=pXYiQ4G0dDY)
37. [[Private video]](https://www.youtube.com/watch?v=Pj7k5KPlYU0)
38. [[Private video]](https://www.youtube.com/watch?v=NwnY_AB-2l4)
39. [[Private video]](https://www.youtube.com/watch?v=6ZZW46EWJvo)

## Transcrições

### AQR LBS Congregation 2017 - David Kabiller | London Business School
URL: https://www.youtube.com/watch?v=iNnQLyjAnvA

Transcrição não disponível

---

### Greek Prime Minister Alexis Tsipras | London Business School
URL: https://www.youtube.com/watch?v=RCP1Ia-xWRk

Transcrição não disponível

---

### Monitoring financial stability along active monetary policies | London Business School
URL: https://www.youtube.com/watch?v=wwaYi_cMJHY

Transcrição não disponível

---

### Discussion on Asset Managers and Systemic Risk | London Business School
URL: https://www.youtube.com/watch?v=yN8de7rdVpk

Idioma: en

good afternoon everyone
so I I have been asked to set the scene
of where we are in relation to these
discussions on asset management and risk
and I had intended to be extremely brief
because I suppose you all know all this
but with Richards presentation I can't
help but make a small comment I'm sorry
with all due respect Richard but there's
a I just wanted to clarify a few things
on the perspective of some regulators
not that they do there are different
perspectives to what's going on in
relation to asset management and the
work that's being done in particular so
I co-chaired this group that's called
other shadow banking entities precisely
because the FSB when it defined its
shadow banking priorities created five
work streams it decided to look at
entities money market funds Fareed let's
say look at entity so banks and their
interactions with funds and it decided
to work at activities so money market
funds and securitization and also looked
at the activity of securities financing
in repo and then the rest and so that
work Jim was called other shadow banking
entities because at the time there was
no very clear understanding definition
of what we were supposed to cover and
that group has morphed into a group that
has dealt with a number of non-bank on
insurance issues it's composed of a very
diverse group of members and we've been
talking about shadow banking in much
broader sense and finally moved away
from shadow banking if you look at press
releases from the Financial Stability
Board it talked about strengthening
market based financing I don't know if
that if you buy that one Richard but
that's the way I often the FSB tried to
relate to it now and particularly now
there is an acknowledgment that we
should focus much more clearly on where
it is that we're concerned about and in
relation to that group in particular for
example it took on work on asset
management vulnerabilities so you may
not like the terminology either but at
least it's much clearer whereas if the
group was looking at that brings me to
what we're talking about today which is
what are the concerns from the
international policy committee in
relation to asset management I will not
bore you with all the history of how we
got there because I'm sure you
all familiar with this I'll just focus
on where we are now which is the
publication by the Financial Stability
Board of its 14 recommendations on how
to address the risks in Asset Management
so just one step back two seconds while
I was talking about asset management
Richard mentioned increase in assets
under management that's the first angle
look at the figures the report states
that the assets under management
increased from 55 trillion dollars in
2005 to 75 trillion dollars in 2015
so not surprising that policymakers
looking at the industry thinking have we
understood everything at the any risks
out there that we haven't covered
properly another concern is also
mentioned by Richard was the potential
arbitrage if he regulate very strongly
the banking sector potentially could
there be some risks that would be
transferring from the banking sector to
the asset management sector and the
third that I think is important to
mention as well is the trauma it during
the crisis that some of the risks that
emerged did not come from the banking
sector and in relation to asset
management there were concerns that came
from money market funds they were not at
the source of the problem since it was
related to the Lehman collapse but still
there was the emergence of fragility in
the system that came from from funds and
so there that led to a whole number of
reforms that we've seen in international
recommendations adopted and then
national and regional initiatives and
now we're in a much better place with a
number of initiatives that have come out
to try to strengthen money market funds
but I think we shouldn't shy away from
acknowledging that there has been an
issue there so coming back again to
where we are today the FSB published in
January their final recommendations 14
recommendations what the report says is
that they consider their two key risks
in asset management at the fund level
but our liquor information and leverage
I will not talk about leverage right now
I'll come back to it later if you don't
mind in relation to liquidity the report
focuses its recommendations which is
really the bulk of the recommendations
in four areas one is transparency
making sure investors understand the
liquidity risk sticks both to the
disclosure to investors making sure
authorities have the data have the
information so making sure the
oh great reporting to authorities on
liquidity second big angle is the
structure of the Sun itself and the
extent to which they might be structural
transformation that could be too
extensive so it's the question of
whether we can in the design or ongoing
when the manager is managing its
portfolio insurance that you have
sufficient consistency between the
liquidity on the asset side and the
liability side a very crucial discussion
we have been on what that means so
that's one key recommendation there then
there's a whole bunch of recommendations
on making sure portfolio managers have
the ability to act should they have to
to contain liquidity risk and that is
making available a number of tools
looking sure they address first mover
advantages so a number of indications
there and finally the fourth element is
stress testing and I will also come back
to that in a minute where we are for the
other risk so that was the bulk they
were two other risk identified in the
report that are targeted directly at the
asset manager itself and not the fund
again going back to Richard's
presentation we have to be careful when
we present these risks we'll talk about
as it matters not having enough capital
we're looking at the risks at the fund
level in the fund as hundred-person
capital so we're looking at the risks at
the fund and then when we're looking at
the asset manager we're looking at
different types of risks in the
particular case of the Financial
Stability Board two concerns that were
identified what happens in the event of
a stress scenario and some problem we
don't define what kind of a shock
happens at the level of the manager how
do they deal with it do they have
transition plans because continuty plans
that are robust enough so that the event
would be smooth over time and then
finally the concern in relation to the
balance sheet and so the angle taken is
situations where asset managers provide
indemnification clauses which is more of
a banking type of service and so the
recommendation is to ensure that it
should that be the case that it would
properly mitigated it acknowledges at
this point in time it's relatively small
and so authorities are encouraged to
monitor the development to make sure it
doesn't become material and if it does
become mature that they should take
action that's for the recommendations in
the report defense Stability boards
asked IOSCO recognizes that it was the
expert standard-setting body so the
international organization of securities
commission which regroups all securities
regulators the FS we ask is co to
operationalize so the recommendations on
liquidity and leverage what that means
in practice is come up with enhanced
guidance to explain what these
high-level recommendations mean in
practice and so for liquidity I also had
published already principles back in
2013 and so what we're doing now we're
trying to enhance those under the
leadership of Martin making sure that we
do have them up to date and
comprehensive and we will be consulting
somewhere in June on those enhanced and
just enhanced guidance along with
information on how in practice
regulatory frameworks or asset managers
actually deal with liquidity risks and
so there will be some illustrations as
well about how those principles actually
are dealt with in practice second big
work for IOSCO to check on the FSB has
asked IOSCO to develop measures of
leverage that could work across fund
ranges and across jurisdictions by the
end of 2018 hugely challenging and again
I'll come back to that in one minute so
as I said that's the big picture of
where we are in relation to this work
along the alongside these initiatives
you of course have regional initiatives
like the ESRB work that which was
pointing to or in national initiatives a
number of jurisdictions have already
stepped up their requirements and have
engaged with their industry and I'll
come back to that a little bit later as
well two seconds on leverage just to
explain because that as the discussion
has moved on I think the discussion is
quite mature in writing in relation to
the query risk management in relation to
leverage is slightly different and so I
wanted to maybe give a little bit of the
rationale behind the work and what the
FSB expectations are look at the
recommendations there are three
recommendations on leverage number one
please I also can you come up with
measures that can help us understand
leverage as I said across fund ranges
and across jurisdiction so seems simple
like that extremely challenging
extremely complex and so I also have to
do that
before 2018 if you look at the
recommendation big change from the
consultation simple has been deleted and
it's not one measure but measures and
you can identify measures so the FSB is
acknowledging the complexities and they
might be measured out there that could
help building on the existing and so
there will be a very intense dialogue
between IOSCO and the industry to see
what can be done that could be
meaningful but for what purpose
so understanding leverage in the system
and what will we do with that directly
the next recommendation is making sure
or thora T's get the information they
can identify those farms potentially
with very high leverage so going back to
a question that was asked earlier the
FSB is saying where it's not capped by
regulation and where the data you
receive shows that you have an outlier
out there we ask you with re to monitor
and act if necessary to take appropriate
action and number three the FSC would
like I also to collect at global level
information on leverage on all funds to
make sure we do have an understanding
globally and we can monitor the
evolution and potentially have a better
policy and be more reactive in the way
we address leverage in the system so
that's lalume on on leverage and I'll be
happy to take questions if you have them
I also wanted to touch upon stress
testing because again as the debate has
moved on we've seen this debate pick up
a little bit with a little bit of
confusion so I wanted to try and explain
a little bit the rationale and provide
this time I take off my international
hats and provide the perspective from
the French IMF in relation to stress
testing you have two angles one is fund
level stress testing and the other one
is what's called macro stress testing on
fund level stress testing it's
consensual there's it's not
controversial everybody agrees it's
meaningful managers do it as a best
practice but we do see extremely
diverging different practices and so
there the idea to try and develop
guidance BAMF a domestic level building
on the European framework that we
consider ready very robust has done
extensive dialogue with the industry and
put out a guide that tries to accompany
the industry and how to do that and
lastly just a touch up on the macro
stress testing which is extremely
interesting and where you do have a lot
of academics working on it but
interesting institutions international
institutions and regulators working on
this the macro stress testing there's a
lot of confusion about what does micro
stress testing actually mean are we
talking about stress testing a whole
sector are we doing bottom-up or
Supervisory lid who does the assumptions
are we talking about stress testing the
entire market banks insurance and asset
managers can we can we do it static or
dynamic I weave second-round effects how
far do we go and so this is really very
topical very intense conversations and I
just wanted to share the aim of
perspective on this we support the
ultimate goal of all these initiatives
that aimed at having a better
understanding of the markets a better
understanding of how actors interact in
the market and what are the dynamics but
we are very cautious about how we do it
step by step we want to take it little
by little to make sure we don't make
mistakes and the assumptions that we
make that we don't go too fast and
drawing conclusions about what we would
be drawing of what we will be seeing
it's very complicated we don't have as
we're saying a perfect understanding of
interconnections we do need quite a lot
of information of what's going on and
the market being very dynamic we have to
be very cautious in the way we address
this and finally since I was told to
have 30 seconds I suppose is to explain
that there was one exerciser was
connected the French level that could be
interesting we account again it's
exploratory at this point and this is an
area where we do think there's a lot of
further research to be done but there
was an exercise conducted by our
equivalent of the SPC so the French High
Council and financial stability or
consent ability geosphere who conducted
an exercise on commercial real estate
the HC SF was concerned that potentially
the prices had increased too much the
transaction level was above the
pre-crisis level and that potentially
might be something we wanted to do there
and so scenarios were defined by the
central bank and then we conducted
stress test driven by the authorities in
each sector and we were able to define
whether we thought there was systemic
risks or not this is just to share this
is one element this is not the perfect
exercise but this is one example of
we can do this I just wanted to shed
some light on the way we do these issues
and I'm happy to take questions
thank you very much professor
so Mike goes next I'm going to use the
this and because I have a handful of
slides not too many so good afternoon
everybody
Zanna said I'm a portfolio manager so I
can't provide a lot of insight on
regulatory process but I'm going to try
to offer some thoughts on how at least
one practitioner sees these issues I
work at a QR and we manage a variety of
funds and separate accounts including a
number that are levered so we have a
really intense interest in the health of
the financial intermediaries and we need
counterparties that are strong enough
and capable enough to provide the
financing and the wide range of services
that we need I don't think we're a
shadow bank you know I've been looking
through the slides there I don't really
see us as a shadow bank I you know
there's I and I know Richards looking
for a better term at least it sounds
like but we I think we don't share
really all of the key features
particularly guarantees which I think
are important I think the one place the
money management business has is in is
in money market mutual funds in dollar
valued fund I'll get back to that
because I think there really was a real
structural issue there that's important
to understand where it comes from
you know over the last I guess eight
years now since the crisis I've been
watching the regulatory efforts evolve
on looking at the systemic risk of asset
management and that I don't know what to
call it others also say regulatory
science has advanced a lot over the
years when if I look back originally the
focus was really on the asset management
companies and not on the funds when
really the actions at the funds of
course and so things have improved and
and and and there's and they're really
you know learning a lot more all the
time
but I think where we've gotten to right
now at least where it strikes me is if
you look at the risks identify
by the regulatory bodies I think a lot
of those are actual risks that are
theoretically possible but I don't yet
think we've made the connection to what
is plausible that is we can identify
risks that might happen a couple that in
particular are of interest to regulators
and I'm going to try to talk a little
bit about our fire sales that hurt
markets our redemptions of mass
redemptions that managers can't beat
these are two important issues the quest
is how much do they actually translate
into real systemic risks and I think
that remains an unknown I'm going to try
to at least look at that a little bit
today by considering a couple of cases
from past history that I think a number
of us are pretty familiar with and I'm
going to start with I but I would call a
textbook fire sale from 2007 and and if
there were a monument erected to
memorialize this particular
conflagration I would think I would put
it in a midtown Manhattan office
building the offices of a fund manager
probably most of you didn't know it was
a manager with a lot of leverage and
exclusively bad Redemption terms and on
the sixth seventh eighth ninth and part
of the day on the 10th of August of that
year there was a broad-based but partial
liquidation and unwind and many market
neutral equity funds somebody and
possibly our Midtown friends kicked a
snowball down the hill and started an
avalanche where levered market neutral
equity funds quickly reduced leverage to
prevent losses from being too high and
running them too low on cash that they
needed to make potential daily variation
margin payments I'm going to show you a
graph well right after disclosures
there's a lot of regular tip Raiders it
regulators in the audience today I want
to I don't want to miss out on that
and so this is a graph of the S&P 500
during what is known as the quad crisis
I think the notable thing here is that
the S&P 500 didn't move maybe moved up a
little and so I'm not going to give us
credit for our liquidations making the
market go up but I think that you can
see that it really wasn't a systemic
event it was a big event but it wasn't
and it was very much the type of event
that regulators think could lead to a
systemic crisis you can see that it
didn't individual stock prices moved a
lot some moved up so I moved out but
they largely reverted within a few days
so why do I bring this up bring it up
because it was a huge event that didn't
translate into an event for the
financial system banks who are the
lenders to all these funds lost no money
no one defaulted some investors lost
money for sure but it was in places in
their portfolio where they know they're
taking risk which i think is essential
and so was not more broadly disrupted
some fund management firms were driven
out of business they quietly closed up
after losing trading authority over
separately managed accounts or after
slowly and gradually liquidating
portfolios to raise cash to return to
investors who redeemed from commingled
funds their failure was not a default it
left no one holding the bag it was not
like a bank
next let's turn to the other big event
of course the bigger event which is the
the natural crisis I'm going to call it
the GFC so I think it's a term a little
more popular over here than in the
United States it was in an epic event
that obviously affected everyone but why
did asset management not make a larger
contribution to risk in a failing
financial system well we all remember
how the intermediaries that finance and
service funds failed how markets moved
and risked Rose how liquidity dried up
across many markets and we remember the
poor investment performance of the asset
management industry but the GFC
demonstrated the resilience and
diversity of asset management and asset
owners did the asset owners change their
allocations not really
they're pretty steady bunch of people
did mutual fund investors flee
particularly important question for
regulators today I think well you might
be surprised to hear that in September
in October of 2008 by far the worst
months net redemptions in mutual funds
in the US totaled three percent of AUM
three percent and hedge funds of course
did quite poorly that they stuck to
their long term notice periods and were
able to take months to liquidate to fund
redemptions to the extent that there
were redemptions asset management
structures not just mutual funds but
also hedge funds and separately managed
accounts held up well the exception was
ironically those unlevered highly liquid
dollar valued money market funds which
I'm going to get back to so now in
recent months regulators have turned
their focus to leverage and liquidity
and I and I think which first go hand in
hand which I think Natasha's pointed out
before and I think I think that that's
the case and I think that these are two
important issues but to make some
headway on this I think we need to start
with a reasonable measure of leverage
that says something about what we fear
from it that is that large stress law
could drain essential liquidity from an
investing edit II but unfortunately the
most common measure of leverage gross
notional exposure doesn't provide much
relevant information and I'm going to
show you a graph here and what does the
graph of oh just took managed futures
funds up which there are many and we
look we plotted the gross notional
exposure you know they trade in all
kinds of different futures contracts and
the realized volatility these funds and
you can see that the notional exposure
goes from very low probably tends to be
about six hundred percent but it goes
much higher than that but there doesn't
seem to be a lot of relation between the
notional exposure and the actual risk
level of the fund it's a simple reason
for that the funds that use the most
leverage tend to take a lot of exposure
to very low risk things like Eurodollar
futures where these other funds may have
higher volatility because they have
relatively more weight on things like
commodity futures which are much riskier
so today I'm going to propose something
a little bit different I I look at gross
notional exposure as a useless sum of
useful parts and what I'm going to
propose is this is that we don't report
gross notional exposure instead we just
break it down into an accounting
identity and look at other pieces of it
pieces that have at least some meaning
to them which is the gross notional on
the high-risk things the low-risk things
the high-risk things that are heads and
the lowest things that our heads and
reported this way I think we would
immediately have a better notion of the
riskiness of some fund it's not the only
measure it's not the perfect measure but
I think it starts to get at unwinding
the apples plus oranges problem that we
have from looking at gross notional
exposure okay
I think to this we could also add things
like looking at cash looking at the
margin requirement and the amount of
securities financed
since that said you know as Natasha said
systemic risk with regulators are also
looking at employing macro stress tests
as a tool to examine acid management
risks I haven't a like stress test they
had a lot of merit and here's a few
things I think should be considered in
their design first I think it's
important to distinguish between the
possible in theory events from the
plausible risk that we actually can and
should mitigate and second it's a little
more technical stress test input should
be sensitive to changes designed to
mitigate the stress test outputs for
example if my stress test is all mutual
fund holders redeemed 10% of their
assets so I get a global 10% Redemption
if that's the stress test and then we
look at the output
what is the mitigant that a manager can
put in place that changes that result
there isn't any because the input isn't
sensitive to those mitigant so I think
we need to design stress tests that are
a little bit more complex than things
like just we just have a big mass fixed
amount of redemption poorly designed
stress tests would be counterproductive
and would shift risks somewhere to where
it's less transparent and less regulated
and investors have to take risk it's the
only way to meet their goals and
remember at the end of the day we're
talking about regulating investors risks
not really asset managers we're just
agents for asset owners finally I think
we should end a lot of the financial
industry and investment fictions that
are out there wherever we find them the
one that is kind of implicitly come up
today is the one that really led to
problems in a money market industry and
that is where funds take some risk even
if it's just a tiny bit they shouldn't
be accounted for as if they didn't it's
better to tell investors the truth and
let them prepare
for the actual possible outcomes second
don't make decisions off meaningless
measures of risk even if we like the
simplicity like with gross notional
unfortunately it doesn't mean very much
and it serves no purpose pretending that
it does third many problematic market
practices have been improved since the
GFC if we ignore these very real changes
we're trying to address a world that no
longer exists and finally it's healthy
banks that are at the center that are
central to the functioning of the
financial system asset managers are
agents for asset owners they're not
banks banks are the hub asset managers
are just the spokes thank you thank you
very much Mike Martin goes next good
afternoon
I expected to be standing up here
agreeing with with Natasha and I'm in a
slightly disturbing position of also
being with a lot of what what Michael
said which is which is a bit a bit
irritating for the purposes promoting
debates but nevertheless I'll do my best
and I thought what I would do is to just
try to explore a little bit some of the
thinking that different regulators have
had around getting themselves to the
position they've got to that natasha has
very effectively summarized and I wanted
to do that by having a go at answering
some of the questions that were in the
in the preparatory material for for for
this session but the first thing to say
is I mean what I take very much from
what from what Michael has said is look
a trigger event doesn't necessarily mean
a crisis no matter how serious the
trigger event is and that is right
and I don't think what we are trying to
do here as securities regulators is make
the markets so cam that you never get a
trigger event what we're trying to deal
with is the mechanisms of amplification
that come after that but then you face
the question that sometimes the markets
prove quite resilient and
a lot of mechanisms of resilience in the
markets so how do we appreciate and
acknowledge that they could counter that
and not fall into this trap of just
seeing a possible risk and therefore we
have to eliminate that risk that that
they give challenge I think for us on
the specific point in relation to
leverage I think might gives in exactly
the right space we need to go back to
the measures think about them and try to
make them better than they are and they
are at the moment if we do not do that
it will be a rubbish in rubbish out
scenario and we have to get past that
somehow and we're not as regulators in
the right space in relation to leverage
to be able to make realistic or good
assessments we're getting into the right
space in relation to a lot of other
aspects of this the data issues are
hugely challenging as Richard mentioned
but we're getting there in relation to
leverage with particular with investment
funds were not there and we have some
work some work to do and so the three
questions that were that I thought were
posed in Indi in the initial material
and attaches partially dealt with the
first immigration stress testing but I
thought I would try and say something
about it and those questions may not be
reflect the perspective in the audience
but perhaps they do because I think this
debate has a lot of blind alleys a lot
of concerns driven by anxiety we don't
want to be treated by banks this sounds
like they're treating us like banks
surely they're not understanding the
nature of our industry that kind of
concern can lead people I think into a
lot of blind alleys in understanding
where securities regulators have got to
so let me make just a few points and I
can make the points on stress testing
quite quite quite quickly we are talking
about liquidity stress testing and not
capital of stress testing so in that
sense the fundamental analysis of what
goes on to the banking sector simply
doesn't apply this is not what we're
talking about and when you do a
liquidity stress test it's not a
pass/fail stress test you are left with
a residual unmitigated risk and at some
point that's okay and the question is
how do you determine when that is okay
and and how that's okay and again that
comes back to make a point about it okay
to identify the possible but you have to
define your risk appetite you have to
get beyond that and understand what you
think is an acceptable risk and there
will always be an acceptable risk in
relation to liquidity in any
open-end a investment fund the only way
to eliminate the risk is to make the the
fund closed and so these are fun stress
tests they're not as good manager stress
tests and that's important there they're
there as a manager led stress test so in
the first instance what we were talking
about is the asset managers themselves
defining what our sensible tests and
that deals I think or at least opens the
possibility to deal with the problem
Michael also mentioned of the parameters
if you define a certain redemption level
and you conclude this that it's going to
be a problem but it's on mitigated but
what do you do then so the whole process
of iteratively defining good stress test
parameters is one of the industry itself
is in the driving seat in relation to in
the first instance and should stay in
the driving seat now if you accept all
those points whatever happened to the GC
fee debates in relation to asset
management to to mention that the
elephant in the room and to my mind and
not all securities regulators agree with
this that debate has not entirely gone
away there is still work to be done but
I would point you in two directions in
order to try to get a more maybe
constructive engagement with that than
we've had in the past the first is the
work that has been done by the EBA
in looking again at at how capital is
calculated for investment firms that
work is interesting work because it goes
beyond the traditional concept of just
setting an operational risk-based
capital requirements for six months of
cost and so on and and what they have
done is try to break those risks down in
a way that is based on operational risk
but also takes into account the
potential interconnectedness of a firm
so they divide firms into three
categories most the most risky the
largest ones most risky ones ones in the
middle which are interconnected and then
the small ones that are basically not
interconnected that you don't have to
take account of that group within the AV
ba is about to finish its work and
report to the Commission but you can
look at their consultation document
which is a useful indicator of an
attempt to revise the way we deal with
assessing capital for asset managers
which takes into account both
operational risk and location within the
market and I would also suggest you
should you should take a look at the
recently published guidance by a Basel
in relation to which is open for
consultation a relation to step in risk
because this is a critical piece of
guidance granted it's focused on
potential spillover into banks from what
they call shadow banking entities but
the same methodology works the other way
it works for understanding both the
potential impact of bank failure on the
asset management sector and indeed the
potential failure within within
investment funds on the asset managers
who manage them and all that goes to
what is currently the dominant practice
which is a bilateral dialogue between an
asset manager and their and their
regulator to set the pillar two
requirement and that's not a dialogue
that is currently transparent
those even to the regulatory community
and certainly not publicly transparent
so it's not well understood
to what extent interconnectedness is
being taken into account in setting
capital levels four four four four asset
managers even if it is been very well
done in individual jurisdictions and we
don't have a public or consensual sense
of how well our body that is going and
it seems to me that a much better
direction in which to take this debate
about as management capital than the way
it was done in the past when they looked
at her GC fees so final point on that
and it comes back to a point natasha
raised what's all this about macro
stress testing and there are let me
differentiate between two different
things if you take it your starting
point that the asset managers themselves
are designing the stress tests for other
individual funds and trying to do them
as well as they can then the question
arises two questions arise one how do
you understand how the system as a whole
is going to operate but secondly is
there any scope for supervisors to
define stress test parameters which will
allow them to get reported into them
useful data now this is a reasonably
pressing question relations in relation
to money market funds but it arises in
relation to the whole sector and I will
just leave it there just to note that
that question exists nobody at this
point I think has a good answer
question certainly nassif nassif in
europe the other aspect of macro stress
testing is this question that has been
dealt with by some studies by central
banks looking at how much how what money
mark market makers have available to
them and in looking at what happens if
the whole of the investment fund sector
runs to the Doral at one time and
realizing that that what's available to
the market makers won't cover all the
sales of the lesson funds might make and
there's a general sense setting and most
people who've read that research that
it's not very satisfactory doesn't tell
you anything very interesting and
certainly I don't think I don't think it
does but it was a first step in what I
think is an iterative process and
they're very long and complicated the
iterative process another way some
people have tried to identify the
existence of a risk is they well to what
extent is there hurting behavior going
on in this sector to what extent is
everybody pointing in the same direction
and if they're all pointing in the same
direction that implies they'll all go on
the other direction altogether at the
same time because it doesn't necessarily
imply that and what we need and what we
definitely do not have at the moment are
very well-developed macro models for how
the market responds in a crisis and this
is hugely difficult it isn't just an
investment funds a sector issue the much
broader issue I think central banks are
beginning to engage with how to develop
these models they do not have it world
about the moment I suspect it will take
years before we have models that we can
really rely on there is a mass of data
to be taken into account in order to try
to develop these models there are some
very simple questions that you can point
to and for me one of the big ones is is
contagion when we move beyond
connectedness and we try to model
contagion how do we do it I was giving a
talk recently to some masters and
finance students in my own town and I
was trying to think of a simple way to
explain contagion to them and it might I
hope I wasn't talking down to them when
I used the example of somebody in a
video game who walks into a room and the
door closes behind him and he's got five
people in front of them they all have
the hinds hands behind
he's told one of them is dialing a code
which will lead to his death he has a
gun with six bullet owners what did he
do
the dialling of the code will take about
10 seconds it took the students in that
class a millisecond to come up with the
answer as to what he does he shoots
everybody in the room and that's
contagion it seems to me it certainly
that's what contagion felt like in 2008
it's not very rational and I'm not sure
how you model us but I leave that to
economists so much better at modeling
though but I am I'm sure they will come
up with a good answer in due course and
so if this is an issue process people
are engaging with it the FSB is looking
at different methods of doing this the
ESRB is looking at different methods of
doing us we will make progress it will
take a long time but simple ideas like
hedging means as I heard amines that the
system is in danger will not be the
answer that we were that we will get to
and on liquidity transformation
investment funds I just want to say a
little bit more on this just remind you
about what happened when the brexit vote
happened in the UK and there was a four
point one percent redemptions out of
property funds in the period of eight
days after that was announced three
suspended on the ninth day and three
more suspended later
none of those funds did not suspend one
reopened on the fourteenth day and five
more then reopened over the September
December period to my mind and I think
in the view a lot of securities
regulator that was a successful event
there was that industry managed a
problem by suspending they controlled
the redemptions they were open to they
protected their investors they kept
their sector stable by what they what
they did I refer you to the FDA's
consultation on illiquid assets in
open-ended investment funds but also
remind you of Richards charkh earlier
where investment funds were up at the
top and liquidity transformation and
maybe it's also work just reminding
ourselves at some individual countries
in Europe have taken certain regulatory
approaches in relation to investment
bonds of highly illiquid assets in Italy
as I understand it if you have more than
20% invested in real estate
you have to be closed-ended in Germany
there's a slightly more complicated set
of arrangements which I have attempted
to summarize there and which finder
standard correctly are a German response
to their 2004 2005 valuation crisis in
their funds so the question arises I
think in relation to the quiddity
transformation leave you with this
question is there a type of asset that
is not appropriate for an open-ended
investment fund thank you thank you very
much my to in January all the panelists
so now we open the floor for questions
so if you could state your name and
affiliation before you ask the question
that would be quick so right in that
case let me ask oh sorry
another go ahead Mexican CV Jeff I'm
from London Business School just going
back to to Richard's Richard Charles on
these potential financial risks posed by
an investor management district right um
raised liquidity as one that does need
to be ristic risk for the rest of it an
awful lot of things seem to me to boil
down to the fact that on occasions
investors will lose money and and if we
think about what went on of the in the
crisis the important thing to avoid is
that that the we don't cope we don't
have those risks located in highly
leveraged sensitive institutions like
banks but that seems to be covering is
important but but there are events in
the real world and investors investors
face these risks and arm and liquidity
does seem an issue okay as you were
saying from possibly correlated call it
a position that's too crowded crazed if
you like I just want to ask the panel
whether they think indeed that is really
the main risk here or are these other
risk for example
is the really substantial credit of
mediation really in the rest medical
industry is a really very substantial
maturity transformation going on or is
it really down to liquidity would like
to I'm happy to start and for the palace
to compliment maybe chip instead of
answering directly of providing maybe
some flavor of the thinking the reason
why liquidity is so high on the list
it's because in relation to this
conversation there was this concern with
potential deterioration in recording in
certain fixed income markets so there
was this concern that if you have more
investment funds investing in fixed
income instruments less liquidity in the
markets if at some point you have all
funds that want to run for the exit at
the same time you wouldn't be able to do
it all of them and so the Bank of
England publicly stated that they did a
very rough questioning of their managers
must have increased six months ago now
maybe even a year and they realize that
managers in their assumptions they were
going to sell three times the market so
it just didn't add up but that that was
looking at the market not looking at
individuals so maybe it was very
conservative the way individual managers
were looking at it but not so that the
main concern today was related to that
because of the significant increase in
investment technical markets and in at
the same time this whole discussion that
is the debate is still ongoing really
because we still have quests about
whether it has effectively deteriorate
or not in fixed income markets and so
potentially the liquidity transformation
is more acute because if you want to
sell into the market and the quittance
deteriorated it will take you more time
where you might have contagion effects
that's why liquidity has been so high on
the list where if you it wasn't
mentioned but it's obvious liquidity
risk is something that managers and
regulators have been looking at for
decades it's not something that's new
obviously right that's what investment
funds do they give a promise in terms of
the liquidity and they don't necessarily
invest exactly in the same degree of
liquidity in their assets and that's
where they're professionals to manage
and they have to make sure that they do
it appropriately the other risks I think
in in Richards table it's an assumption
right it's not backed by data it's in
the
sumption of what people think is more or
less important in terms of the risk for
funds that's why I think the term
engagement was retained because from a
factual perspective objectively yes they
engage in maturity transformation liquid
transformation is that a risk or is that
in so mature that it's of concern that's
something that is not necessarily
consensus and so the other issue that
everybody agrees on is leverage but more
from the perspective of should they be
very high leverage because we have few
examples in the past such as LTCM where
you did see a broader impact than just
the fund itself and the same for when
you talked about are the other risks to
go back to money market funds that is
the event the example we have where
money market funds were a contagion
channel and that it could not be
contained you needed to have the
intervention at some point from the US
authorities to stabilize the market I
think so that that's a little bit of
thinking at least not necessarily a
financier there's a few important things
there first the liquidity matter the
idea is as martin was just talking about
that some of the you know some you know
should you have limitations on certain
funds like how much property can you
hold in an open-ended fund i think is
completely legitimate question and i
think there's a you know there's there
there certainly you cannot have it you
know an unlimited amount of illiquid
investments in a fund where people can
redeem overnight but that seems more
about a fun dish not a systemic risk
issue what makes that a systemic risk
issue is i think the bridge that hasn't
been crossed yet is how does that become
something it is certainly something that
is properly a regulatory concern as are
many other things at the fund level but
is it a systemic regulatory concern that
i'm not so sure about natasha talks
about the bond market and worries about
the bond market and that was what
created some of these issues where you
had the bond market getting bigger and
we know that bond dealers market making
capacity is lower
now I think Blackrock has put out some
things that are good to show that that
actually market volumes in a lot of ways
that that's an illusion that they're
really actually is more capacity than
you might think
but if there were a big event and
investors really wanted to change their
bond allocations from let's call the US
where they're 60/40 40% bonds if asset
owners wanted to go to 30% bonds it kind
of doesn't matter what banks do because
the banks aren't big enough under any
circumstance to deal with that that's
got to go from asset owner to asset
owner and nothing's happening until you
find the other side of that trade which
probably means move the prices a lot
okay but that one's not really so much I
would see a systemic risk issue or
either I think we're looking at the
wrong thing when we look in those cases
as what is dealer market making capacity
that sort of thing is it's not the
dealers are going to be basically
riskless principal trading that between
between different asset owners only you
are going to disagree with my color it's
died oh no I said earlier I'm agreeing
with Michael today so I'm very good let
me say I think it's what I think your
comment highlights is there's still a
lot of uncertainty a disagreement by
what we mean by concept of systemic risk
and I can give you my provisional sense
of what I mean by it and if I refer to
the word I used earlier which which I've
quite like which is the analogy of
amplification and if that seems to me to
be the key the key concept is very
different from the traditional idea of
systemic risk being a bank or another
entity which is so large under so many
counterparts that if it goes down the
whole system goes down that is not what
you're talking about in this case you're
talking about a process of amplification
for people's behavior in response to a
trigger event is other than it could be
in other words the alternative would
have been more stabilizing so the
alternative of some some of the
stabilizing behaviors are the patterns
of
Varian investors and say when prices go
down that's a stabilizing behavior this
sort of long-term hold behavior is a
stabilizing behavior so those are
behaviors that keep the system stable
notwithstanding your quant crisis
trigger event let's say and and the
question is can we promote those types
of behaviors and the answer which is
quite positive I think which has come
from a lot of work that has been done
over the last few years is it's actually
an alignment of interest between good
investor protection regulation and good
systemic risk regulation that good
liquidity management in investment funds
so that it stays invested in the
strategy which it has been mandated to
invest in bias investors will also be
the kind of behavior that will keep the
systems to air more stable in a crisis
it's not a let's keep the system totally
stable because if the system is totally
stable then there's no there's no
there's no risk being taken there's no
reward being earned and there's no
there's no benefit from financial
innovation and so on so the financial
markets are not doing their job so it's
about more or less stable
it's not about stable versus so it's
sort of completely completely unstable
so our but and to go back to your
original question is it really about
liquidity transformation I'm very
tempted to say yes because I think it's
sort of 80 to 90 percent about
capability transformation when we're
talking about the investment fund sector
and leverage is very much to me a an
add-on to to illiquidity a
transformation risk or excessive
liquidity transformation because because
what it does is to make those funds even
more sensitive when they face a
redemption pressure and even more likely
to sell their assets out faster even
more likely to abandon their their
strategy and even more likely to do
damage their investors paradoxically by
the manner in which they respond to
redemption pressure from a minority of
their investors maturity transformation
is an arguable point in relation to
money market funds but in relation to
investment funds certainly use its but
but you know they leave some of the
hedge funds out of in relation to
investment funds which invest in in
traded assets
maturity transformation is not really
the the issue to me thank you
any other questions no all right let
that keep also you're going since you're
here and what is it that you're most
worried about at the moment at this
precise moment I mean there's obviously
lots of concerns out there from shadow
banking in China through concerns about
property market and sort of rising
credit creation in various obscure
structures but do you actually have
specific concerns at the moment about
any of this I my answer to that would
would be I don't there is I really
shouldn't say this but there is nothing
I am so concerned with about the moment
that I would highlight as a point worth
voice focusing on certainly from a
systemic perspective and it's got to be
wood here somewhere so let me ask you
something so let's take the worst case
scenario so you have in a fund a lot of
leverage a lot of illiquid assets and
they are involved in a very crowded
trade so how would this unravel so in
case there is a big Redemption so how do
you see so what is the systemic event
for the market what's the worst-case
scenario would anybody face that
unraveling for me if possible the fight
if you've presumed your question
presumes that the entity is very levered
and it's crowded so that that means
other Leonard levered entities are
insane trade send me somebody's lending
them money and I think that's the key
issue is not so much the if you what's
the impact on the fun shareholders
they're probably going to lose money
that's presumably it's in investment
pools where they understand there's risk
the real issue is for the system is
there are lenders and if the lenders
lose a lot of money is that a lot of
money
okay there's remember lenders sometime
can lose big piles of money in certain
places there are markets that kind of go
upside down every once in a while in the
banking business is it is the question
here would be is the events so big that
it creates a 2008 type crisis or maybe
there's something smaller than 2000 but
at some type of crisis that's pretty
hard to do something's got to be awful
big remember what is it that upended the
world in 2008 a lot of it was the u.s.
mortgage market which is immense it's
hard for somebody to get a levered fund
presumably let's say a hedge fund which
is where most of the levered funds are
to get that big in that cloud or de
trade to have that type of impact I
suppose it's theoretically possible but
that's I don't know where it's
practically possible I don't think that
the trigger event is the key issue to it
to me it's back to the mechanism of
amplification so you might get an event
which could be quite small but it is but
it's an dionyse um but by the argument
that's made by a Harvard professor whose
name escapes me but if you look at
LeMans and net basis and what people
actually lost in the back of that it was
quite small though really scary thing is
that it was quite small and how that
happened on the bag of us that is really
what worries you about that so it's not
so much the event it's the process that
comes after it and I think the
vulnerability seems to be and I defer to
economists who are better able to
understand this than I am seems to arise
in relation to investment cycles where
you get over path periods of time you
get changes in the way in which people
access liquidity and you get changes in
the structure of leverage within the
system in a not in a sort of a trade by
trade basis if you like but in in a
pattern where it just the system becomes
so vulnerable that are quite a small
event comparatively can create quite a
large behavioral shift within the market
place I'd like to have something here so
the thinking there was a lot of the
discussion we're talking about now it
looks like it's very consensual there's
no queue which is not-it's little huge
tension I just wanted to provide some
background to the challenges and how we
reach this point
which will explain why we are aware the
the really are some policymakers in
particularly central banks which frankly
so it's their job have been and continue
to be extremely concerned with potential
event that could have an impact of the
size of what we saw during the financial
crisis and that is why they they cannot
accept the argument that you know we
haven't seen it or if something happens
we'll manage we have you know we
equipped to deal with situations and so
the language is often we you shouldn't
be complacent we shouldn't wait for
something to happen to then provide a
response we need to be forward-looking
and proactive and so it's important to
have that in mind what we're trying to
find a balance and I think I hope the
FSB learn it in the right place in
providing guidance to say we need people
to step up their efforts in relation to
these risks without being too
prescriptive to go to martin's point of
preventing markets from functioning
normally and so yes there are some
concerns out there I can't I can't not
respond to the question about what are
we worried about so we do have our risk
team so we'll be publishing our risk
mapping and so they're there specialist
they are economists and they do things
very seriously and that will come out
somewhere in June but I just wanted to
share that first in France at this point
in time we are worried from the
political perspective there's a
political risk and so we don't comment
on outcomes but our chair did come out
to say that he was worried there was not
sufficient discussions about potential
implications and from a large country in
Europe coming out of the eurozone we are
concerned whether the we are concerned
with valuation in the market and
potential studying price adjustments and
we've been saying that for a while and
is also a very big concern with the very
significant amount of debt in the system
that is so I have academics around me
who can correct me but I understand that
the level of debt is superior to what we
have before the crisis and so they are
there are some concerns out there about
you know we're where we are today and so
I wouldn't want you to think that we
okay or sleeping on out your ears
happily so again this is a conversation
that was very difficult because we're
coming with different angles as to what
we think actually needs to be done in
the system and a lot of good things have
been done out there and so going back
maybe to close
the loop of what I also going to publish
one of the elements is going to be
published alongside these additional
enhanced guidance is providing
illustration about past events so I
think what Michael and Martin provided
today is precisely that giving precise
examples of events in the past and how
it was dealt with by the markets or the
regulator's and it does provide that
material that we need to be able to
understand okay what would be a
situation that we would be concerned
about I think we really need to that and
we have examples from the whole market
including in Hong Kong in China or
examples in the US or other places of
the world it's interesting I think that
sort of half of those elements and we we
don't have material examples of
significant problems I think that would
be an interesting element to put out
there it seems that we we're trying to
figure I think you asked your concern is
a valid one you know how do things get
amplified the problem is and we have to
worry about these things that may exist
but we don't have a lot of good ways of
figuring out what those things are so
one is to look at history which is a
little bit of how I approach things but
another thing is almost like you need
like the equivalent of science fiction
writers who can come up with ideas that
you hadn't thought about and and all
that I've spent some time studying LTCM
and you know it's it's still not clear
because we don't really know what would
have happened had the banks not stepped
in and provided more capital we don't
really know where that would have lead
so we kind of missed that modulator
point he said we're not interested in
the trigger itself because in general
and I think everybody except now asset
management and investment funds would
only be a channel so it's not so much
about what the problem would be it would
be outside the question is how strong
how robust is the system to deal with
that given situation so that's what
we're trying to do is making sure people
are where people have the systems in
place in the understanding to face
situations so well I know there are
other questions of the auditor and
fortunately with a clear signal from the
our events team that we really have to
wrap up this session so that we could
prepare for the next one so we are
having a coffee break now
and during which we can bring up all
these questions to our fantastic
panelists so all I could do now is just
to thank them for a great presentation
and great answers to okay
[Applause]

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### Discussion on ETFs, Liquidity, Leverage and Financial Fragility
URL: https://www.youtube.com/watch?v=spqK9Unwr_g

Transcrição não disponível

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### Insurance supervision at the PRA
URL: https://www.youtube.com/watch?v=Vtw43uwIzjA

Transcrição não disponível

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### MiF Global Business Experience: New York & Boston | London Business School
URL: https://www.youtube.com/watch?v=8VDf8LLQgiA

Idioma: en

the Boston in New York global business
experience is really a way for our
students to understand a bit more about
some of the challenges that are facing
the asset management industry in the
United States its experiential it's
getting a feeling for how institutions
operate how environments different or
want students to understand so what are
the challenges and issues of the asset
management industry but also related
areas and how the other management
industry influences and the overall
macro economy and other areas in finance
and economics there are quite a few
interesting trends and challenges the
asset management industry faces in tech
what our policy makers going to do in
terms of regulating the industry we
spent the first two days in Boston and
the following four days in New York the
Boston part was really focused on MIT
Harvard some of the big asset managers
like mer numeric State Street and then
the second part of it was in New York
visiting banks regulators other clients
as well being led by the faculty was
fantastic I think they've got some
really valuable and important
relationships and they leverage that to
get us fantastic meetings with really
senior influential asset managers and
portfolio managers and I think that
really created what was a fantastic trip
there are so many companies that we
visited during edge of the GBA the ones
that stand out for me are some of the
private equity companies general antic
who
one bursts of investors in that in uber
and snapchat we were fortunate enough to
have one of the most accredited
professors of economics professor
Benjamin Friedman talked to us and give
us a lecture on his views on the economy
so this really highlighted to me the
power of obs the network the community
to be able to get such a figurehead to
spend an hour of his day to speak to all
of our students and that was really
really special one of the highlights for
me on the GB program was the baseball
game at Boston Red Sox Fenway Park I've
never been to and it's sort of the holy
grail of baseball so that was really
exciting on the final day there's quite
an interactive session where you get to
have debates with different team members
where we are talking about the themes
that have been discussed throughout the
week and one is arguing for and one is
arguing against so right at the end of
the week that was quite a fun thing just
to round off you know the the whole trip
you also had a boat cruise which was
just to unwind you know reflect over
what we've learned and just solidify
some of the relationships that was made
along the way the final cruise I reckon
it was the best sunset I have ever seen
and that is not a joke it was phenomenal
like Statue of Liberty and the Setting
Sun that I will remember forever
being on the part time program you're
kind of meeting every other week so this
was an opportunity to really build up a
network and meet new people
everyone's different and everyone's got
something to bring to the class which is
the best thing about it these guys give
you a different perspective because
they're at a different point in life
maybe learning slightly different things
I've come away with the desire and
interest to look into private equity and
the hedge funds and they gave
into that space you know that's
something that two weeks ago I didn't
really have any knowledge across it's
been really inspiring to gain more
knowledge of the asset management
industry
you

---

### MBA Global Business Experience: New York & Boston | London Business School
URL: https://www.youtube.com/watch?v=GBO80FTSNJE

Transcrição não disponível

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### The Rise of Alternative Investments
URL: https://www.youtube.com/watch?v=FpJdqc0Iotg

Transcrição não disponível

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### Regulation in Asset Management | London Business School
URL: https://www.youtube.com/watch?v=4Xwz9Wi9USc

Transcrição não disponível

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### What is the Equity Investment programme - London Business School
URL: https://www.youtube.com/watch?v=vHbVm0zGjHE

Transcrição não disponível

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### Fintech Insights Weekend | London Business School
URL: https://www.youtube.com/watch?v=g7QZ8QOg_MM

Transcrição não disponível

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### London Business School FinTech Conference: Susan Athey, The Stanford Graduate School of Business
URL: https://www.youtube.com/watch?v=Y5MgQnDCCYk

Transcrição não disponível

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### London Business School FinTech Conference: John Plender, Senior Editor, Financial Times
URL: https://www.youtube.com/watch?v=i3vLTFatrMg

Transcrição não disponível

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### London Business School FinTech Conference: Lucrezia Reichlin, Professor of Economics
URL: https://www.youtube.com/watch?v=bhOqAU49IRE

Transcrição não disponível

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### London Business School FinTech Conference: Andy Haldane, Bank of England
URL: https://www.youtube.com/watch?v=G8T20YLC9nY

Transcrição não disponível

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### What can asset managers and regulators do to improve liquidity? | London Business School
URL: https://www.youtube.com/watch?v=lvufKaXxDFo

Idioma: en

so how do we improve the liquidity of
the asset management market what we need
I think transparency into fees you need
transparency into the not just the
return process of the investment
processes I think first and foremost
with fiduciaries we think about
long-term interests of our clients and
so when we're thinking about the
challenges they face in liquidity we
need to think about how we organize our
business but also how we've constructed
with regulators about some of the
changes that they're proposing so that
they understand there's a perspective
that's not necessarily coming from banks
but coming from those who represent the
interests of long-term savers I think we
can be very constructive in that
dialogue liquidity is typically provided
by the large sophisticated asset
managers and so if we can improve
investors ability to find the good asset
managers that really have their
abilities to source returns then those
asset managers will get the better
capitalized and they can trade more
efficiently and improve the liquidity
and security markets so improving the
functioning of the asset management
market could really improve the
liquidity in the security market they're
really positive changes like technology
that can put us in a better place and I
think if we live through the lens of
trying to get back to some era for the
crisis I don't think that'll be
successful so I think we need to be a
little careful about that and look
forward and think how we can use
technology to make things better
different but better so if with the
newer information technology we can
improve investors ability to really look
behind the veil and figure out you know
which asset managers are really working
very hard to create returns and which
are mostly just collecting fees I think
that then there's hope that that
investors can can get value for the
money
there are one or two areas in which
regulators can assist the provision of
liquidity and one of those where efforts
are ongoing is to improve the
availability of market making services
on off dealer balance sheet vehicles
like trade platforms or matching
sessions regulators again may need to
think about creating a more
heterogeneous system where people have
different appetites for liquidity and
can substitute for some of the
occasional gaps in liquidity that we're
seeing through what's become a little
bit more of a homogeneous system another
way to conserve dealer balance sheet
space and maintain liquidity is through
the creation of central counterparties
especially in the repo markets where in
the United States there's been a lot of
concern about repo market liquidity a
central counterparty could mitigate that
quite a bit so I think for regulators
the the issue they have to think about
is to understand if you like the
distribution of liquidity shocks and the
problem for the regulator is to think
about those circumstances are not to
under plan on their circumstances
another area in which regulators can
make a difference and have been making a
difference is in bringing together
capital markets participants academics
and other policymakers into the same
room to have conversations about these
issue I think structurally she's a very
important I think in addition to that to
weigh carefully the benefits of small
resilient system against the costs of
diminishing liquidity and to really be
careful about that balance in the
interests of investors and also issuers
of securities to ensure that the
quiddity premier doesn't rise to the
extent it starts to have an impact
the pole

---

### Why is liquidity so important to investors? | London Business School
URL: https://www.youtube.com/watch?v=_QEewmsA97w

Transcrição não disponível

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### Introducing the AQR Asset Management Institute | London Business School
URL: https://www.youtube.com/watch?v=Zfh0x_xDAmg

Idioma: en

[Music]
London Business School is delighted to
collaborate with aqr Capital Management
on the creation of the aqr Asset
Management Institute this is one of the
school's most significant long-term
Partnerships what excites me about the
new partnership with the London Business
School is our sheer DNA The Institute
brings unique opportunity to London
Business School and and to aqr but by
bringing together sort of the best of
both institutions in terms of practices
and and knowhow and and skills by
bringing together this two institutions
we hope to create something that is
going to be unique and is going to add
significant value not just to these
institutions but to the whole Asset
Management community in general through
its teaching research and Outreach The
Institute will do three things first it
will enable those in the industry to
have better tools to do the job to
create wealth and through that economic
wealth being secondly it will enable
Scholars to work on the problems of the
industry and third it will have events
which bring together Scholars and
practitioners to discuss the key events
not only of the industry but of the
world in which it operates I appreciate
the depth of talent and the breadth of
talent here at London business school
and what excites me is the possibility
of working and bringing all that Talent
together to try to generate uh new
research and provide some solution
solutions to institution investors
around the world London is the
preeminent place in the world for
investing and for innovation in
investing too and I think that lbs being
situated in London and being so closely
associated already with the investment
industry puts it in an absolutely Prime
position to do something that is
challenging Innovative and really takes
the whole industry to a new and
different place the stute um is a very
interesting Institute because it Bridges
the gap between theory and practice and
there's a lot of academic academic work
uh in the field of Finance but there's
actually a lot of academic work missing
in the field of asset management I'd
like to think that investors would view
The Institute as a place where they can
come debate ideas and learn about things
that can help them in their actual
day-to-day jobs one of the things about
the Institute that I think is really
important is in a way its convening
powers its ability to bring together
really top quality academics with
industry practitioners at the highest
level it's too often I think there is a
view from practitioners that academics
sit in an ivory Tower and view from
academics that practitioners don't
really know what they're talking about
and actually we've all got a lot to
share in terms of best practice and
things that we can do to evolve our
thinking looking forward uh we have some
very Grand Visions for what the
Institute could and should deliver in
the coming 5 to 10 years we will
establish a venue of choice for students
to come to who are trying to uh find
their place in the world of Finance the
students coming to London Business
School degree programs will benefit
enormously from the access to aqr and
other asset managers through this
institute I would like to think that the
Institute will be instrumental in
bringing some cutting EDS some new
thinking we can create very relevant
research and and address the challenges
the world faces regarding the retirement
challenges we hope to create a framework
a way of thinking to address the
challenges faced by asset owners asset
managers The Regulators going forward if
the output of the in of The Institute is
is a practical guide uh for us that
would be a great success
[Music]

---

### What are the key implications of liquidity for investors and regulators? | London Business School
URL: https://www.youtube.com/watch?v=FXZlKKciOQ0

Transcrição não disponível

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### Hélène Rey, JEEA-FBBVA Lecture Interview 2016
URL: https://www.youtube.com/watch?v=ZHn6x_eZk-o

Idioma: en

is it possible that this global
financial cycle is driven at least in
part by US monetary policy
the global financial cycle is the co
movement of gross capital flows of
credit growth of leverage and of risky
asset prices around the globe we tend to
see a lot of commonality of financial
intermediaries getting more leverage at
the same time of credit growing at the
same time in a lot of geographical areas
and of capital flows cross-border being
very correlated with one another in some
cases it may translate into housing
booms in others maybe not but varies a
lot of commonality involves credit
aggregating was flows and inverse asset
prices I have ran a number of what
economists call VAR s which use
different identification techniques for
monetary policy shocks in the US and I
studied with the effects of all these
monetary policy shocks on a very large
number of variables so I do find what
u.s. monetary policy is one of the
drivers of this global financial circle
it's not the only one it's one of the
drivers let's imagine the Fed raises the
interest rates in 2016 father so what
does it mean well what it means
according to my estimate is that the
leverage of financial intermediaries
goes down that capital flows go down and
that funding conditions tighten around
the globe so now that may be important
for a number of countries which rely
heavily on dollar funding or which have
some dollar rised financial system for
one reason or the other and in that case
that may lead to more severe capital
outflows out of these countries and
potentially to some issues with
investment in most countries now how big
he really affects of us decreasing
credits the decreasing Frost will be
depend on a number of specific features
of each country's why is the US so
important because the u.s. is at the
center of international monetary system
because the dollar is an important
funding currency for international
banking in particular but it's also
widely used by asset managers this is
what makes the US special the policy
implications of my findings are that
emerging markets but not only emerging
markets advanced economies as well
cannot necessarily hit their optimal
target of inflation or output
stabilization in a world where the
global financial cycle is important what
that means is that we interest rate is
not enough in order to achieve your
domestic target even if you have a
flexible exchange rates so I do find for
example transmission of a global
financial circles to economies such as
the UK or Canada or Sweden which are you
know advanced economies with floating
exchange rates we've developed capital
markets so what does that means well if
you interest rate is not enough you need
additional tools I think the first line
of defense where are probably
macro-prudential tools depending on the
type of transmission of the global
financial cycle if it is a financial
stability problem if it is because of a
dollar ization of a balance sheet if it
is because of other types of capital
market imperfections you want to use
different macro-prudential tools in
order to get at the problem and to help
the traditional instruments of monetary
policy to be more effective how to
exactly use these tools depends on on
more theoretical modeling but we still
have to do if macro-prudential tools are
not effective enough in countries where
for example the banking system is not
the only game in town but there's a lot
of market finance one might have also to
use capital controls are effective with
capital controls are i think is still a
matter of debate
we need to gather information we need to
gather data from all the experiments
that have been going on I think there's
probably not going to be a very general
message where in each country will have
to work out the optimal mix of tools
compared to the you know 20 years ago
we're a lot more hetero docs in terms of
what kind of tools what work so for some
countries and maybe for other countries
I think we should be much more open in
terms of considering various options I
think the key takeaway now is that if
you want to hit your domestic target you
need more tools than on your interest
rate and you you need to consider the
variety of instruments macro-prudential
policies possibly capital controls and
what will work will depend on your
institutions we depend on a number of
things so we have to be a lot more open
you

---

### Hélène Rey, JEEA-FBBVA Lecture 2016 "Monetary Policy With Large Financial Flows"
URL: https://www.youtube.com/watch?v=qvHC-_pRvWc

Transcrição não disponível

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### Ralph Koijen - Insurance, Real Estate and Household Finance | Vox Views
URL: https://www.youtube.com/watch?v=jyBiuh9E890

Transcrição não disponível

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### Strategic Investment Management | London Business School
URL: https://www.youtube.com/watch?v=q3j6rhMpnMk

Transcrição não disponível

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### Excellence in Teaching Award to Professor Francisco Gomes
URL: https://www.youtube.com/watch?v=msjiArx4AeE

Idioma: en

it's my pleasure to present the
excellence in teaching award to
francisco gomes in his absence as he
cannot be here today
francisco is professor of finance and
one of the academic directors directors
of the aqr asset management institute at
london business school
he teaches with great success on several
of our programs
on the phd program he has taught the
asset pricing class every year since
2002.
this is the first of a sequence of four
phd courses which provides a
comprehensive grounding in the
theoretical and empirical methods of
finance
when you teach the same course
repeatedly there's a great temptation to
prepare the class once and then use the
same material over and over
but francisco refreshes the course every
year to ensure that it is up to date
with the latest developments in the
literature
this is not lost on the students who
consistently praise the design and
development of the class
they give francisco stellar ratings
including scores of five out of five
four times in the last six years
if you can keep track of all those
numbers
he has been called amazing and inspiring
the class is challenging and
expectations are high but the students
meet them aided by the fact that
francisco is always available and noted
for his ability to make complex
financial concepts simple
or almost simple
he is dedicated to making sure we have
the best phd program possible and
attends all the finance phd student
seminars and has served on many phd
committees for students in finance and
other subjects as well
at the master's level francisco teaches
capital markets and financing a
prerequisite for all financial electives
he brings with him a thorough knowledge
of theory and practice enabling him to
make the class both rigorous and
relevant
the class is an impressive blend of high
level theory and business practicality
one student evaluation notes that he
brings a logical order with a cohesive
fit of concepts into the overall big
picture theme
which is a fine testament to francisco's
class
and to our students for being able to
write such eloquent evaluations
he doesn't jealously guard his talents
but rather is known to be a constant
source of advice for junior faculty
please join me in congratulating him on
this well-deserved award
you

---

### Webinar: The art of Investing and Manager Selection | London Business School
URL: https://www.youtube.com/watch?v=AfD_6UHyRjs

Transcrição não disponível

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### Faculty lecture: What should I do with my money? | London Business School
URL: https://www.youtube.com/watch?v=xEIAOaCPWrk

Idioma: en

those who have come back this evening um
I think I would Rec describe this as the
describe it as
theet which I count myself a member I
must say I'm absolutely delighted
that and I know that there are many more
people in the room and we love to be
here uh to hear them um there are two
very important people in the industry of
L business school um there are not many
people predate predate my arrival in
1974 but both of them do um and so
they've involved very much in the whole
history of L business school virtually
from the very very beginning um and so
they're not it's not just for their
scholarship as it were and for their
presence outside Business School ation
but also what they've done that I just
like to particular contribute this
evening um both of them have served not
only in terms of look of of the
governance of the school um but also in
the development of Finance uh faculty
here to be what it is today um and on
many of the developments of the programs
and including the Masters in finance
program um so things which are Central
to the way the London Business School
operates
um so just like to take this opportunity
both of you to say thank you so much on
behalf of the institution we're looking
back as part of the 50th of all the
things that have happened and have come
across many great things and and Paul
mroy have been very much part of part of
that um I should also mention Mike ston
with Mike it's Patrick's you couldn't oh
right
sorry because um Mike has also been been
uh very involved in this work this
evening and I know who's been a has been
a great collaborator over many years
with both both Paul and Eloy um I I
don't think I really ought to say
anymore because Paul and can speak uh
very much for themselves and I don't
want to take up any more time anyway so
can I have you Paul Elroy whichever
one's going to start thank you very
much thanks Andrew you're as always too
kind a very warm welcome to everybody um
it's it's wonderful to see how
prosperous all the alumni are I saw I
saw the cars outside I was I was
impressed um so welcome back it's really
really good to see you we're going to be
talking tonight about um what should I
do with my money it's a rather ambitious
topic and we've got quite a lot to cover
uh because we made too many promises on
the invitation as to the asset classes
that we would talk about so um without
further Ado let me dive into the
presentation
since not 1900 but since
1999 Mike ston Eloy and myself have been
working on a long-term returns project
what we've been trying to do is assemble
long run rates of return on asset
classes around the
world the reason we wanted to do this
was because when we started back in 1999
almost everything we knew about rates of
return on equities bonds cash inflation
and so on came from the United States
and if you picked up a textbook in
corporate finance or in Investments it
would give you the United States
evidence and it would also give you the
impression that that held good for the
rest of the world and it also held good
not just for the past but for the
future the way we thought about it was
that the United States has actually been
a rather successful economy during the
20th century it's been the uh superpower
it's been the super power in terms of
economics in terms of Finance in terms
of the military and it wouldn't be
surprising if when we looked to the
United States the returns that investors
had enjoyed were rather good what about
the rest of the world what we wanted to
do was globalize it and look at returns
from the rest of the world so that's
what we've been doing it's a labor of
love you have to be seriously sad to do
this sort of thing and we've put
together now a database of um of 23
countries for which we've got a a full
115 years of coverage on stocks bonds
bills inflation currency and GDP there
are a couple of countries in the sample
China and Russia which don't have
continuous histories and I'll come to
explaining why we wanted to include
those in a moment and each year we
update this work through the global
investment returns yearbook and right at
the end of the session um Elroy will
show you a slide which is how to get
free downloads of the uh Global
investment returns yearbook uh should
you wish which is unlikely uh to read
further about our work so a lot of what
we're going to be talking about tonight
is from this long run historical
database and Eloy has gone much further
with this uh he's not just been content
with stocks bonds bills inflation
currency he's also gathered longrun data
on works of art violins wine all sorts
of things stamps and so on and finally
we're also going to talk a little bit
about the returns from in which we
thought might um be
interesting uh so this is the title what
should I do with my money I now have to
confess that we're going to be telling
you more about what you should have done
with your money because we're going to
be able to tell you very precisely where
you could have made money in the past um
but we're going to try and say something
about uh about the future as well so I'm
going to look at the the bulk standard
assets uh cash equities bonds and
currency are always going to look at the
more exotic things like real estate gold
art stamps wine and sin and Corruption
and then finally we'll say a few words
about sort of personal planning how on
Earth do you decide uh between all these
asset classes and what to do with your
money so let's start with cash and um
the obvious thing we all know is
interest rates have never been lower the
bank of England has a database of
interest rates going back to
1694 and interest rates have never been
as low as today with base rates at half
a % uh which they've been at for six
years now I think if you put yourself
back to 2009 when they first went down
to half a percent uh you would really
have never predicted that six years
later they'd still be at that level so
interest rates are very low it's not
just a UK thing that's true throughout
most of the developed world now these
are nominal interest rates these are the
rates you get uh what you should think
about of course is the real interest
rate uh the real interest rate is simply
uh the short-term cash rate or the rate
you get on government bills minus
inflation and the reason you should
think about things in real terms is
because that tells you how your
purchasing power is going to uh
expand this chart shows the real
interest rate the average real interest
rate for the USA the UK and for all of
our yearbook countries and you can see
that for the first eight Decades of the
20th century real interest rates were
actually pretty low this is the the
average interest rate minus inflation
rate uh in the USA over the first 80
years and the UK and in the average
across all of the countries we look at
so real interest rates were very low
then we got to the 1980s and central
banks decided that they needed to
conquer inflation and so they started to
raise short-term interest rates as a
weapon against um inflation and to drive
inflation out of the system and we've
now had 28 years up to 19 up to 2008 of
extremely high uh real interest rates
and then of course the financial crisis
came and real interest rates have been
extraordinarily low since then because
Central Bankers then took the opposite
view which was that in order to survive
and to uh reboot the economy you needed
very low interest rates now the problem
with this is that people talk about when
will interest rates get back to normal
the question is what's
normal this 28e period is the period
that sort of dominated most of our
careers and we tended to think about
really quite High real interest rates um
but that really wasn't typical this
certainly isn't
typical what could we expect for the
future maybe something closer to when
interest rates do finally normalize
perhaps about 1% real um but this and
this is what sort of affects our
expectations and our thoughts um I think
is as unreal in some ways as this is and
and um and this of course had two world
wars so even when you look over very
long run periods of History you can see
that it is a little bit confusing and um
the point I'm making here really is that
at the moment real interest rates are
extraordinarily low but even when they
normalize it's quite hard to know uh
what will be
normal interest rates are currently very
low are they about to go up and
normalize well one way we could get some
Clues on that is to look at the term
structure of interest rates and the term
structure of interest rates would simply
mean looking at the difference between
the rates you get on 3month money 10year
money and 20-year money in different
countries and you can see here that um
rates even on 20-year money are
extraordinarily low until you get to the
the antipodes or until you get to the
emerging markets and I suspect a lot of
you would look at that 16% you can get
from Russia um and still not be terribly
tempted by it this is um this is if you
like our reality this is the bulk of the
developed world if you look at the the
dark blue bars here that's three Monon
money some of those are negative we've
got negative interest rates at the
moment we got used to zero interest
rates now we have to get used to
negative interest rates well I was
brought up to believe that you couldn't
have negative interest rates because
everybody would just stick their money
under the mattress if you had negative
interest rates uh why would you you
actually earn a negative interest rate
well if you put it under the mattress
you might get robbed I suppose and your
household Insurance probably doesn't
cover much more than ,000 and you all
look like you're good for a lot more
than that um so you could you could hire
a standard safety deposit box for £600 a
year and you could put it in the bank in
a safety deposit box uh you can get
1,000 Swiss frank notes you can get
16,200 of those in a safety deposit box
which you can hire for £600 a year so
you can actually store 11 million for
£600 a year don't ask me how I know
these things by the
way if that's the case you know that
would put a bound on the interest rate
so why are interest rate interest rates
in Switzerland minus 1% in Denmark minus
1% but look at some of these 20year
rates they're amazing too the 20year
rate on German government bonds is is
just .5% 50 basis points
.5% amazingly low so really when you
look at this it doesn't look like rates
are going to go anywhere fast soon
perhaps in the United States they'll
start to rise a little bit later this
year in the rest of Europe or Japan
extremely unlikely in the UK we're
probably a good way off that but when
they do rise it looks like they're going
to rise very slow slowly
indeed so this is a problem because real
interest rates are the Baseline for
everything else every other asset we're
going to talk about this is the Baseline
for I mean for years we've been teaching
in finance here uh that the uh return on
an asset is equal to the risk-free rate
Plus premium for risk what's the risk-
free rate well it's the the real
interest rate on very short-term
government securities
and if that's the case then that sets
the Baseline for everything else if real
interest rates are low real Equity
returns are likely to be low real Bond
returns are likely to be low real
property returns are likely to be low is
that the case well we've got lots of
observations of real interest rates
we've got uh 21 countries with A
continuous history we've got 115 years
of data so that's 21 time 115 so we've
got all of those observations of real
interest rates what we've done is we've
ranked our data we've sorted them from
the lowest real interest rate through to
the highest and then we've looked at
what the subsequent rates of return are
on equities and bonds over the following
five years and there you see it the
equities are the blue bars the bonds are
the gray bars and you can see that when
real interest rates have been low
historically Bond and Equity returns
over the following 5 years have been low
and when real rates of return have been
high then then Bond and Equity returns
have been high and there's pretty much a
perfect relationship between the two as
you move through the
gradations so the worrying thing today
is that we are in a low return World
we're in a low expected returns world
not just for cash but for
everything well after we chosen the
title for this talk this was the
headline of the investors Chronicle and
uh this is one of the main topics you
hear over dinner parties at the moment
you know what should I do with my money
you know interest rates are low low
growth low interest rate
World okay cash you can't avoid having
some cash but at these rates on cash you
don't really want more cash than you
need to have is equities uh the
Salvation should we be investing in
stocks what are the properties of
stocks well the first property of stocks
is their risk
it would be very dishonest to have a
talk like this without referring to the
risk of equities and um this is us rates
of return and those us rates of return
are the excess returns so each of these
um bars each of these little cells
represents a year and it shows the
return on equities minus cash so this is
the excess return on equities it's the
extent to which US Stocks have have
beaten cash in each of these years and
you can see the most popular uh range
here is between 10 and 20% there have
been uh many years more years than uh
for any other range uh when returns have
been in that range what we don't like of
course is this we don't like losing
money that's what we mean by risk you
can see that 1931 was the very worst
year ever where you lost 44% of your
money relative to cash 1933 was the best
year ever where you made 50 7% relative
to cash and you have this distribution
of returns around there and this is the
risk about a third of the years you lose
money from stocks that's the United
States that's been one of the more
successful markets and it's also been uh
a market which has been at relatively
low risk so if we show you the
histograms for other markets some of
them will be much wider than that with
much greater Prospect of loss so equity
are risky and uh the compensating good
news is that they are priced in a way
that gives you a premium for risk
investors don't like Risk because they
don't like Risk they price equities at a
discount to the relative to the expected
cash flows and a discount relative to
the rate you would get if you were
looking at a bond and so you get a
higher rate of return from equities or
at least a higher expected rate of
return from equities but because they're
risky you can never be sure you'll
actually get it
this is the uh rates of return that
Americans have enjoyed they've they've
certainly had a very handsome Equity
risk premium historically if you'd
invested a dollar back in
1900 by the time you got to the end of
2014 you would have had $38,000 or just
scaling It Up by 100 in uh you would
have turned $100 in 1900 into $3.8
million that's the good news and the bad
news is you would have been long dead by
them and but let's assume you you defied
the doctors in some way or that you have
a bequest motive and that You' wanted to
pass this money on to your uh to your
heirs um you can see that these are
phenomenal returns 99.6% per year from
equities and bonds turned $1 not into $
38,000 but into
$278 with a return of 5% per year and
bills came in below that uh at uh $1
becoming 7 $4 I said just now we should
look at everything in real terms there's
been a lot of inflation you can see that
um even in the United States there's
been 27-fold inflation over this 115e
period and that's been one of the low
inflation countries so let's look at it
in real terms so this is all adjusted
for inflation adjusted for inflation $1
has been converted into almost 1,400
times its purchasing power in real terms
over 115 years is so the real return on
equities has been 6.5% per anom compared
with bonds at 2% and bills at 0.9 I've
added another line here which is um
Equity capital gain that shows that if
um you taken your Equity portfolio and
every time someone had paid you a
dividend you had just dumped it in the
waste paper bin which would have been
pretty stupid more sensibly you would
have gone out and you'd have spent it on
riotous living uh if you had done that
and you had not reinvested your
dividends $1 would have become just
$12.8 so the huge return we're showing
here in real terms is the power of
dividend growth and reinvested dividends
over time and uh this has for Americans
generated a very large Equity risk
premium two points here real returns are
what matters and dividends matter uh
over the long run this is the Bri
experience in nominal terms before we
look at the real terms it's it's pretty
similar to United States uh 10000 became
3 million after 115
years in real terms it's less good than
the states because we had a lot more
inflation we had 83-fold inflation in
the United Kingdom and um the real
Equity return in the UK has been 5.3%
compared with the 6.5 for the us but the
UK did less well but that's still a very
handsome Equity risk premium over time
4.3% per anom remember per anom and
compound interest means that the
terminal wealth uh compounds up very
fast here's another country or rather
two other countries and a first glance
of this this is from
1865 uh at first glance you say I wish
I'd been in the red line there that's
the market to be
in until those of you with a suspicious
bent notice the ending date is
1917 and uh then I tell you that that is
the New York Stock Exchange and the St
Petersburg Stock Exchange you would have
lost all of your money in equities or in
bonds if you were a Russian domestic
investor in 1917 with the
Revolution and it's important when we're
building a database to include
countries that have not succeeded as
well as those that have succeeded
because one of the things we've been
building here is also a world index from
1900 and if you have a world index which
ignores Russia and China where investors
lost all their money uh then you are uh
subject to some pretty serious
survivorship
bias so a couple of years ago we uh made
an effort to improve our database we had
some gaps in it as you can see
this is the world in 1900 the United
Kingdom was actually the largest Equity
market then with 25% of the world total
the US was uh lagging behind at 15%
although it soon overtook then Germany
was the third largest France was the
fourth largest and then we had some
missing countries we had Russia and
Austria that were missing and we also
had china although it wasn't a large
Market um it was also
missing and the reason we wanted to
infill our database and make sure we had
these countries was to avoid this
survivorship bias so we added the two
largest missing markets Russia and
Austria and what we do with Russia in
our world index is it's in the world
index to 1917 then you lose your shirt
on it and then when Russia comes back in
19 in the 1990s and uh the market
reopens uh Russia comes back into the
index with its waiting at that time so
we've added in Russia and Austria we've
added in China markets with total losses
that was 12% of the world that we didn't
have which we now have and that was to
avoid survivorship high now I'm going to
show you how the countries compare and
also the world index which we have been
careful to avoid this survivorship bias
in so this is the equity risk premium or
the Returns on equities bonds and bills
since
1900 uh over the 115 years and these are
annualized real returns so these are all
after inflation the light blue bars are
bills the uh gray bars are bonds and the
dark blue bars are equities and the
first thing you can see if you look at
it carefully is that equities beat bonds
everywhere in every single country
equities did best and the second thing
you can see with a little extra effort
is that bonds beat bills everywhere and
so life is like it's meant to be the the
law of risk and return holds the
riskiest asset class equities gave the
highest return the next riskiest bonds
gave the second highest and bills gave
the worst
Returns the second thing to notice is
the United States with its real return
of 6.5% perom and um I'm sorry this is a
little design fold here this should be
here the 4.5 should be against the world
xus so the world excluding the United
States gave a 4.5% return and the United
States gave a 6.5% return so our initial
concern that the US had done rather well
and by looking at the US experience you
were getting a biased picture for the
rest of the world was
correct there's been lucky countries
there's been unlucky countries we're
going to focus on the world here the
world had a return of 5.2% in real terms
perom these are the Unlucky countries a
lot of these are old world they were
countries that suffered a lot in the two
World Wars U the moral if you look at uh
Japanese Equity returns or German Equity
returns is don't pick scraps with your
neighbors and then lose uh the moral for
other countries like Belgium and France
is sort of don't get in the way of
scrapping Partners if you look at the
right hand side these are the lucky
countries a lot of these are new world
countries resourcer countries uh and I'm
proud to say um most of them are um
British colonies or were at one stage
British colonies the exception the
exception being Sweden uh but there's
there's always
time the historical Equity risk premium
has been 3.2% against bonds and it's
been 4.3% against
bills what do we think it's going to be
in the future well Dimson Martian ston
think it's going to be in the range 3 to
3 and a half% uh Marsh is a little bit
towards the 3 and a half% end of that
why do we think it's going to be less
than in the past two reasons really one
is that um first of all we think that
over time there's been a reating of
equities to do with better
diversification opportunities and that's
been reflected in historical returns but
you can't expect it to continue in the
future and the second is that the second
half of the last century was just 21
Wonder ful to be true and so our
estimate of the future Equity risk
premium is about 3 and a half% that's
still pretty good that means that over a
20-year period um you would still expect
uh to double your money relative to cash
by putting it into equities so that's a
pretty good Equity risk premium this is
the wonderful period since 1950 the red
bars are uh 1950 to 99 the blue bars of
1950 to uh 2015
and you can see that these returns uh
have really been phenomenal since 1950
put yourself back to 1950 uh the equity
risk premium remember is meant to be the
reward investors need to persuade them
into equities rather than uh putting
their money into
Cash the reward they actually get may be
higher than that if they get some
winfall gains put yourself back to 1950
what sort of returns might you have been
looking for well it would have been hard
to have been an optimist back in 1950 we
just had the most terrible devastating
World War uh the Cold War had started uh
we felt under the nuclear threat and
then when we think about what's actually
happened over the last 50 60 years um
most things have actually on average
gone pretty well uh the Cold War ended
there was no Third World War the Cuban
Missile Crisis got diffused uh the Cold
War ended and the good guys won at least
we thought the Cold War had ended until
recently
and um also there were massive
improvements in invention uh in
innovation in management in technology
uh in shareholder orientation and so on
and um this period uh we think was truly
the Triumph of the optimists which was
the title of a book we wrote a few years
back let me just remind you also of the
power of companion you might look at
this and think oh goodness me a return
of 7% which is probably where the
average lies here that's no great shakes
well a return of 7% real remember these
are all real after inflation uh is a
lot after 10 years you double your money
at
7% after 20 years you've quadrupled your
money after 50 years you've multiplied
it almost 30 fold the power of
compounding is absolutely phenomenal so
putting money into the equity market and
being patient and leaving it there has
in the past been enormously successful
in the future we believe it will be
successful but a bit less so uh than
this period uh because this was one
where the optimists
triumphed the other thing to remember
about equities is although they are
risky individually one of the things you
will all have learned from London
Business School is that when you put
stocks into a portfolio that reduces
risk well similarly when you put
countries into a portfolio of countries
that also reduces risk if you were to um
randomly pick one of our countries
countries the standard deviation or the
dispersion of outcomes would have been
around about 28% uh if you had split
your money across 20 different countries
it would have been about
20% and there's a nice gradual falloff
in risk as you add more countries now
none of us are going to put the same
amount of money into Belgium or Ireland
as we are into the United States it's a
US is a huge Market the others are tiny
so it would be probably more sensible to
think about what the divers ification
benefits would be if you capitalization
weighted this or you weighted your
Holdings by the sizes of the markets and
if you do that uh you reduce risk from
about 22% if you stick to one country
down to about 177% when you get out to
20 countries so one of the last free
lunches you have in the capital markets
is the opportunity to diversify and
diversifying across countries globally
diversifying uh is an important lesson
of equity
investment bonds what can we say about
bonds here are some highlight statistics
first of all these are all averages of
the last 115 years and the first thing
to notice is the real Bond return I'm
showing here the US the UK and the world
so the US has generated real Bond
returns of 2% per year what do I mean by
a bond here I mean a Government Bond and
I mean a long Bond a 20-year Bond and so
these are strategies of investing in
bonds with a 20-year maturity and
maintaining that maturity over time so
these are the returns you've obtained
historically from investing in bonds
this is how much you've got from bonds
relative to cash so this is the premium
you've got for being in 20-year bonds
rather than in cash and again across the
world the average has been about
1% this is the equity premium this is
how much equities have beaten bonds and
you can see it ranges from 4.4 in the
states down to 3.2 for the world that
was the figure I showed you just now
this is quite interesting this is the
ratio of equity volatility to bond
volatility so it's just the standard
deviation of one over the standard
deviation of the other and for the world
index it's 1.5
that's the extent to which the equity
standard deviation exceeds the bond
standard deviation or put another way
bonds are about 2third as risky in terms
of standard deviation as Equity so bonds
are riskier when you get out to Long
bonds than you think in terms of their
duration and finally of course you don't
have to invest in government bonds you
can also invest in corporate bonds and
the additional premium that you've got
on top of the Bond maturity premium from
investing in highgrade corporate bonds
these are extremely safe corporate bonds
is another um 64 basis points 0.64% so
these are the the Highlight figures
historically for bonds of course if you
invest in very risky corporate bonds
that figure goes
up so it's a rough you know number to
bear in mind long bonds have given
around 1% perom more than cash history
historically but it's not been a smooth
ride when you show these 115 year
averages uh it conceals a lot so first
of all we had the world wars bonds
didn't do very well during the world
wars uh German bonds um particularly
didn't do very well and Japanese bonds
particularly didn't do very well so U
Wars are a pretty bad thing uh deflation
is a very good thing for bonds because
bonds promise to pay you a fix fixed
coupon and that fixed coupon becomes
more valuable uh if there is deflation
because um instead of deducting
deflation you're adding deflation to get
your return and so in the period from
1926 to 33 when there was deflation
pretty much around the world youve got
extremely good returns from bonds the
enemy of bonds is inflation and
hyperinflation if you were in Germany in
1922 23 you would have lost everything
if you were in Austria in 1919 to 22 you
would have pretty much lost everything
you would have lost 98% of your money
even in the UK between 1972 and 1974
when inflation was roaring away you
would have lost 50% of your money in
real terms in bonds so inflation is the
big enemy of
bonds in the early 80s the central banks
tried to squeeze inflation out of the
system and they won the fight against
inflation and they did that by jacking
up real interest rates and uh the bond
returns were excellent but here's the
most amazing bar of all the last 33
years has been an amazing golden age for
bonds much more so than you may realize
the return on bonds and notice I've gone
to a second decimal place here for a
reason
7.22% the reason I've gone to that
second decimal place is because the
world Equity return over that same
period was
7.19 so over the last 33 years World
bonds a portfolio of bonds for around
the world in real terms would have
beaten just a portfolio of equities
that's not the way it's supposed to be
that's not the way that God designed the
world it's a very very strange
phenomenon so first of all bonds are a
deflation hedge but they're very
vulnerable to inflation and this is why
we' we' had such wonderful returns from
bonds you can see that from the 1980s
onwards you had these are the bond
yields in the US and the UK uh in the
1980s and you can see how that's been
relentlessly driven downwards to 2.5 and
2.3 today what's our best estimate of
bonds in the future it's not let me tell
you 7% per anom real your best estimate
of the return from Bonds in the future
is 2.5 nominal not real and 2.3 nominal
in the UK not real because that's what
the bond yield will be if you invest in
20year bonds today and you held them for
20
years so to extrapolate from the last 30
years Bond returns would be complete
fantasy your best guide to Future Bond
returns is to look at the bond yields
you get today and I showed you the slide
earlier of how pitifully low those
returns are looking so bonds don't look
exciting uh but they have a lot going
for them as a relatively Safe Haven they
have something going for them as a hedge
against deflation and they have one
other thing going for them and that's
that they're a diversifier which is the
uh next thing I want to talk about Eloy
discovered the wonderful world wonderful
word
bathophobia basiphobia is a fear of
falling you are basiphobia if you are
sitting at the top of this precipice and
you are scared of falling over the
precipice and as investors we have a
fear of
falling and I'm going to show you um
some draw down charts and draw down
charts are charts which show just how
much you can lose and over what duration
you can suffer a loss and I'm going to
start by showing you us equities this is
a draw down chart uh let's look at a
very famous draw down this one is the
the Wall Street Crash and in September
of 1929 you started losing
money and you kept on losing money on a
cumulative basis until you had lost
nearly 80% of your money in real
terms but you were still even when the
market started to recover this is a ball
Market here um even when the market
started to recover you're still below
water you still haven't got back to
where you were in September 1929 and you
have to wait until you can see the
little of white there February
1937 before you actually get back to a
position where uh you had the same
amount of money in real terms as you had
back in September 1929 so you wait 7 and
1/2 years and then sadly Along Comes the
second world war and you're into trouble
again
uh the other sort of famous draw down is
um is this one which we've all lived
through which was the March 2000 uh draw
down when equities hit a serious bare
market and by 20067 they nearly made it
back uh but they didn't quite make it
back in time for the financial crisis
which then came along and so we had a
13-year draw down and you can see that
at the worst of the financial crisis
there was a loss in real terms of 55 %
so that's the extent of draw down risk
that you can face from equities you will
amarate this a little bit if you invest
in the world index rather than just the
United States uh because you'll
diversify across countries but you still
are going to have very big draw Downs
now let's look at bonds they're going to
be much less risky right
okay well not
exactly not exactly look at this draw
down this this is pretty amazing there's
a red line that runs along the top so it
looks like you never get back to zero
but that that red Line's there for a
purpose and I was unable to remove it so
you do actually get back um and so
starting in 1940 this draw down ends up
with you losing in the United States 67%
of your money in real terms at the
absolute bottom and it took 51 years for
you to get back to the wealth level that
you had in 1940 from investing in
bonds the problem is all of us think
about that last 33 years of wonderful
Bond returns don't we our entire
professional careers bonds have done
absolutely wonderfully but this is what
bonds can do to you and you have to be
very very careful they are not risk-free
they are less risky than equities but
they are by no means risk-free Let's uh
you know put the two together you can
see uh the two sets of draw Downs
together this still dominates um and uh
this is still pretty bad this is the
picture for the UK uh in the UK the the
worst ever bare Market was um the 19 uh
7374 bare Market uh when investors lost
something like from uh Peak to trough
about 75% of their money in real terms
and you can see the other bare markets
over time and this is uh UK bonds and
that's the two put
together what if you hold some of each
though what if you hold some equities
and you hold some bonds what does that
do for
you well that actually does quite a lot
for you the blend of just 50/50 one and
the other leads to smaller shorter draw
Downs
the blue is the United States and the
red is the UK we don't have daily Data
before 1930 for the UK that's why the UK
uh starts rather late uh all of this is
built from daily data going right by
back in
time so another important message is
that you get diversification benefits
from blending equities and bonds and the
reason you get those diversification
benefits is because the bond Equity
correlation is not one it's less than
one not only is it less than one uh but
currently it's been negative it's been
negative since uh 2000 uh it's been
negative since a bit before that and
that means that by blending equities and
bonds you reduce risk so diversification
isn't just about diversification across
stocks and diversification across
markets it's also about diversification
across asset classes that
also extremely
important the
currency I showed you the benefits of
diversification across countries just
now and what I didn't point out to you
was that when you invest abroad you know
this of course you take on some currency
risk you're not just investing in the US
Equity Market you're also investing in
the dollar the figures I showed you were
that risk gets reduced very quickly not
withstanding the fact that you've also
taken on some currency risk so those
figures that I showed you were after
taking on currency risk the question
though is what do we do about currency
when we're thinking about this Global
portfolio that I'm arguing you should be
holding do we take it on the nose do we
hedge it um do we back off completely
and stay domestic um well currency
movements can be big
this is the uh picture since 2000 and um
you can see that there have been some
very weak currency countries where the
uh the dollar has appreciated very
markedly against say the the Turkish
currency the Russian Ruble the South
African currency the Brazilian and so on
and there have been other currencies
where uh the US dollar has depreciated
against them and although we all talking
how weak the euro is at the moment the
euro is still stronger than it was back
in uh 2000 at the moment not by much um
and uh it seems to be narrowing so these
are Big differences if you're investing
and you invest in countries that turn
out to have a strong currency you look a
hero if you invest in countries that
look turn out to have weak currencies
you can look a fool uh so currency
affects your
returns uh this is Britain of course
but we're looking at the wrong thing
those were just the exchange rate
movements if we should look at
everything in real terms we should also
look at currency in real terms the real
exchange rate is the exchange rate
adjusted for the relative inflation of
two
countries and um the reason that's
important is because this is the period
since 1970 the period of basically uh
floating um freely floating exchange
rates this is for 83 different countries
and each blob shows you the annualized
exchange rate change relative to the US
dollar against the annualized inflation
rate relative to US inflation you can
see that the two lie pretty much along a
straight line of 45 deges the biggest
deviation here is actually Russia and I
don't think that's because it deviates
from this Theory I think it's because
they weren't paying much attention to
the measurement of inflation in Russia
during part of this period And so that I
think is just a mismeasurement of infl
what this means is that in real terms
currency movements are much much less
than you believe them to be when you
look at the raw currency movements
longterm currency changes are mostly
driven by relative inflation and an
economist would say purchasing power
parity at least in its relative form has
held quite
closely so these are the figures I
showed you earlier the dark blue bars
are the local real returns so so what I
mean by that is the dark blue bar for
the UK shows the real return a UK
investor would have made from equities
over the last 115
years the gray bars are common currency
returns they're in US Dollars here but
it could be in any common
currency and the US dollar return tells
you the return a US investor would have
made in real terms from investing in the
UK or from any other country so you can
see that the return a u UK investor made
from investing in the UK and the return
a US investor made from investing in the
UK are almost identical and that's
because the real exchange rate change
that's this little tiny red bit at the
bottom here was almost zero over that
period so what was actually happening
here the UK currency depreciated by
about 1% per year over5
years and UK inflation was about 1%
higher than US inflation over 11 15 is
and the two cancel out and the real
exchange rate uh is pretty much uh zero
you can see that in some countries the
real exchange rate has been larger than
that but it's never been more than 1%
anywhere and whether we look at returns
in uh local or whether we look at them
in common currency there's really not a
huge amount of difference so for a long
run
investor currency barely impacts your
long run returns you don't have to worry
about it too much if you don't like
currency risk of course you can hedge it
there are perfectly effective ways of
hedging it cheap ways of hedging it but
if you're a long run investor don't
hedge it because actually what you'll do
is you'll get rid of the currency risk
but you'll introduce some interest rate
risk that you really don't want and
after about seven or eight years as a
holding period you start to find that
volatility increases from hedging rather
than decreases so for long run investors
you don't really need to worry too much
about currency AR always going to deal
with the Exotic
stuff I was with my children over the
weekend and uh they said what are you
going to be doing tomorrow this is a
Sunday um I said well going to be
recovering from the weekend's
festivities we have a family celebration
they said what are you going to do the
next day I said well um giving a
talk um I said what's it for and I said
it's a 50th anniversary
celebration and so one of the kids said
oh yes you once told us you started
going out with each other in the
beginning of
1965 and I
said well no it's London Business School
aniversary you do you do make me think
of something there's something to worry
about as well um
so I'm going to talk a little bit about
uh uh what Paul calls the Exotic stuff
and um I'll draw again on work which uh
uh we've done over time um let me start
with uh with
housing uh one uh proposition people put
to us is that investing in real estate
is um is a good idea real estate always
wins and we don't have uh 100e histories
for commercial real estate except in
rather special circumstances so for
example there is a uh a series for
Manhattan property but Manhattan
property commercial property uh is
unlikely to be typical of real estate in
the US as a whole but we do have uh now
uh a number of people who have gone down
the same route as uh Paul and I have
done we've collected together Financial
market returns from different sources we
didn't compile all of these country
series for Equity markets we've talked
with other academics we' drawn on their
work sometimes we've worked with them to
extend their series but a lot is the
work of others and there's a man called
Neil mon who quite recently published a
book called safe as houses uh and he
went down the same Journey he talked to
people and discovered that there were a
number of housing series and now there
is a a growing industry of looking at
real estate prices they're all somewhat
different but the six countries which we
have data are averaged in the darker red
line here for reasons you'll discover in
a moment I I think I should call it that
the Claret line um so the clarate CED
line shows you what the average
performance has been and on average
houses have given you uh a return of 1
to 2% real per year um how housing is
sort of interesting from this point of
view it's given you some capital
appreciation we don't know quite what
people spend on improving their property
but we also don't know what the imputed
value of the rent was Nor indeed uh the
pleasure of owning their own home rather
than renting an otherwise similar
property um but we are able with a long
series like that to look at the
relationship between uh house prices and
uh uh and inflation uh and one of the
features that we see there is the um
extent to which houses kept pace with or
were relatively insensitive to inflation
they actually have a slight negative
relationship to
inflation so there's a little bit on
real estate and what I want to do next
is talk a little bit about gold which
may be a little bit closer to the hearts
of some of you who may simply rent
property but may like gold gold is the
Premier asset in many people's mind as
an inflation hedge and let me show you
some of the evidence on gold prices this
slightly complicated chart is actually
um quite simple um what we've got is the
Blue Mountains over there in the
background that is UK inflation
so some people would say well we should
look at gold as a potential inflation
hedge um the gold colored bars are the
returns that you get on investing in
gold so that's a nominal return on gold
and so as an inflation head what you'd
be looking for are cases where you see
inflation being high uh and the return
on gold being high uh doesn't always
work like this um but uh that that
that's the background there are some
parts where gold does do seem to move
around very much and then there suddenly
jumps those are the cases where uh the
British pound was pegged to Gold either
explicitly through the gold standard or
through a link to the US dollar until
the Nixon break of linking the dollar
with uh with gold uh and so you can see
cases where it's fairly flat and
occasionally you can see as was the case
shortly after the end of the second
world war of of a
depreciation then you can see on the
right hand side
uh once there was a uh once there was no
longer an effective gold standard and
for a lengthy period you can see
considerable fluctuations in the price
of
gold taking the price of gold and taking
uh inflation we can construct a real
return Series so the line plot here the
blue line plot shows you what the
performance has been in real in
inflation adjusted terms from investing
in gold gold over the period that we
looked at had given you little little
over 1% again one 1 to 2% per year in
real terms but um as uh a hedge against
inflation although there is some
relationship uh between inflation the
real return uh is correlated with
inflation this is very very patchy as a
reliable hedge it's hopeless so although
on average there's something there um
this is a um uh a form of invest M which
may provide you with some psychic
benefits a term I'll use again shortly
you may feel good about knowing about
the lumps of gold that you own um but as
a prudent Financial hedge against
inflation uh to be taken in in um small
doses so what I'd like to look at is
that if gold gives you some warm
feelings what about other altogether
more interesting assets and gradually
we're also finding people who are
putting together series that cover long
periods uh the first I'll look at is Art
um let me show you some evidence on the
long-term performance of art this is U
uh drawn from uh a paper that uh
addresses investing in emotional assets
which is written by Kristoff spanger
who's now at HC Paris but spent a period
as a visitor here um and this is his
work that although we've we've we've
used this he he put together data on
over a thousand repeat sales uh over a
very long period from two main sources
the the standard source is Ringer's book
on the economics of taste where uh this
art scholar uh spent his time looking up
prices from all sorts of different
sources and so uh it's an interesting
volume because uh sometimes at least
Paul and I get accused by our wives of
having a rather strange taste in
collecting these bits of old data from
long ago but there are other uh famous
people who are why regarded as uh
experts in their field who do the same
thing and WR linger did exactly that um
you can buy our books quite cheap on
eBay but I just bought one of Ringer's
books it was even cheaper than one of
our old
books um so uh We've looked at those
prices and created U an index based on
repeat sales the idea of a repeat sales
index is you'll have a transaction in
something in two different periods they
might be 20 years apart there'll be a
transaction in a comparable work of art
which might in the first case be
somewhat later than the other one and
then there'll be another one which may
be later or earlier than the second
trade in the first artwork and we can
put all of these together and extract
from that an indication of what the
year-to-year movements in art prices are
so what we're doing is let's show you an
example from the right linger book um
this is just uh taken out of that 1861
um an image uh a picture called the
childhood of clti uh was sold for 420
British pound and then in 1872 the same
artwork appeared on the market those are
the repeat sales that we're using and by
exploiting that one can come up with an
estimate of the Returns on Art um art
over the long run has done a little bit
better than the U emotional assets that
I've shown you so far something of the
order of 2 to 3% per year real inflation
adjusted
um we can do the same for stamps
um uh while he was here um uh my
co-author Kristoff spanger um I feel a
bit bad saying this because it was my
idea but he did it he went over to the
British Library uh and spent his time
copying prices into his laptop out of
old Stanley Gibbons
cataloges um but we ended up with a very
large array of data on uh uh British
investment quality stamps they're just
the sorts of things that you'd be
persuaded by Stanley Gibbons to invest
in um and so here's an example from
particular page where you can see um
that in those days a used Penny Black
would still sell for a penny um but you
would have got a whole Shilling uh so
the the the penny is an old Penny of
which there were 240 to the pound and
the Shilling is worth 12 times as much
as the old Penny uh and so an used one
was worth rather than more but it's not
always like that um the the most Ardent
stamp collectors in the world are the
Chinese uh and Chinese stamps this is uh
uh communist era Chinese stamps are were
far more if used and unused they printed
lots of them to sell to stamp collectors
to bring in some currency uh but nobody
had any money or opportunities or
reasons to sell to to send letters so
the used ones are worth more uh but not
not typically for the is uh examples so
we can go through the same sort of
process um of course the repeat sales
are frequent because we've got a catalog
that appears every year um and so here
you can see the return on stamps again
of the order of 2 to 3% real per
year um another example is musical
instruments the the the stamps we
collected um but the uh data on musical
instruments was collected by a former
economics lecturer here called Katy grad
who went on to Oxford and uh is uh now
lives uh in in the US uh where where
she's an academic uh and so um her
infatuation was with violins and she
collected a large block of violin data
uh she published an article on it um but
very kindly made her underlying data
available uh to us she um she had
produced estimates of returns decade by
decade using this data and um
uh my co-author Kristoff is something of
an expert on um using basian methods to
kind of torture the data to reveal what
happens year by year uh and so we were
able to do something similar so this is
an example of uh the the the underlying
data so this is um a record from uh
Andrew Hill uh who is is a
multigenerational family this happens to
be an illustration of a violin which you
can see up here is referred to in the
accompanying documents as the lady blunt
which is offered for
sale but this is a uh an example of uh
another sort of collectible they're not
cheap this one sold for 10 million pound
sterling um so what happens with musical
instruments we don't have all musical
instruments I'm using that term
generically but actually the data isn't
based on um uh something with the order
of 4,000 uh violin sales from 1900
onwards again 2 to 3%
real um and then let me tell you about
investing in wine um uh there are many
things that I haven't succeeded with but
I'm a definite failure as somebody who
should have been the fourth generation
wine Merchants so the the family wine
business was my great grandmothers and
then my grandmothers and my father took
it over um and uh that was the end of
the the story it was almost the end of
the story we still have the um some of
the leftovers from the business which
are in a seller and I just received an
email uh late this afternoon from
chrises I was saying we've got to put an
end to all of this will you come around
and value what we've got and Chris has
sent me a rather deflating email saying
they've looked at the Infantry that I
sent over and it's very interesting they
recommend another auctioner to come
around and have a look at it
so so what can I do uh I can you know I
can crunch numbers like Paul was
describing um but just as well I didn't
become a wine merchant um
so um we we uh collected data on Premier
crew or what to Americans since we
always write these papers for an
American audience first growth not
Premier crew which is speaking foreign
um so uh we've got the the the five fine
Bordeaux um we collected data from uh uh
1900 onwards actually uh end of
1899 uh for wies with vintages from 1855
onwards uh we didn't use data on Magnums
or half bottles just standard bottles
for reasons which will become clear and
so we had two types of transactions we
were helped by christas so really Christ
really should have helped me not sent me
a lousy lousy email this afternoon to
put me off now um so we took the Chris's
prices um and we took dealer prices so
uh um Simon Barry who's now the chairman
was the chief executive Simon Barry uh
is a keen historian and has gone back
and collected all sorts of artifacts
that represent the history of his
company in St James which is between 3
and 400 years old um and so uh Al
together we collected 36,000 wine prices
each one collected by hand
um and uh 9,000 combinations of
different year shatow vintage and
transaction type whether it's an auction
or or a dealer
transaction so the idea there is that uh
the different combinations of wine
prices enable us to explore the
evolution of wine prices over time and
the second 9,000 combinations enables us
to look at repeat sales in the same way
as the other uh series that I was
showing you um so what does this data
look like uh at Christ's what we ended
up with was going through annotated
catalog so these are catalogs which had
been printed for each auction and then
marked up by the auctioneer so here's an
example of one um and so you can see
there's some Claret up there those are
are sitting at the front may be able to
see that um lot
114 um is marked with a two that's two
cases two dozen bottles um people might
want to sample the wine of course um and
then uh so that's uh shatow cemon shatow
Petrus which was not quite so great at
the time at that time wouldn't have been
quite so highly regarded um but what I
always remember is um sorry about this
it's my uncle sirel my uncle sir uh who
always used to to want my father to
bring up to to to to his house he lived
in the north of England shatow Ean uh
and this is this was his absolute
passion so uh here you can see that the
two cases of shatow eam it says two
dozen bottles of Shadow come
25 uh um and then it says 1 and 10 12ths
so they've sampled one bottle I've even
got on to sampling a second
bottle so we've got the these prices and
it's in the Judgment of the auctioneer
so the auctioner would tell you as to
whether there's some suling if that will
increase the the uh uh realized price so
people seem to like increasing the price
that the shadow eem would go for and uh
had less interest in the chal Blanc that
so we had the the all of this stuff with
the scribbles over it and the prices
that were realized in auction so fit the
the top right hand corner is 56
Shillings so 20 shillings to the
pound um although you are coming back
many of you from years ago and there
were scarcely any people from outside
the UK back in those days but uh those
younger here have been drawn from all
over the world so I still have to
explain Shillings
and and we went then to other data
sources that Christ were very helpful
with and then we did something similar
with Berry Brothers so the the the
prices had been bound up um uh and so
this is a uh one one example of a berry
berry Brothers pric list if you go into
their shop they haven't changed the
format since 1900 this is a 1909 price
list so these exactly the same format
although the scale of the inventory is
much larger and so we were able to look
through that for the prices that we
wanted uh and then uh after the bound
sets that Simon Berry had assembled some
loose price lists and then moving on to
the website so what happened there um
the uh uh the W the wine price index
which in in this case we adjust for
storage costs and for insurance costs
using some industry sources for that uh
give you a return of about 4% per year
year um in real terms real British
pounds so the orange bars are nominal
returns and the red line plot shows you
what the cumulative real returns were
like so there were negative real Returns
the red line dipping downwards over the
first quarter century and then a boom
and bust over World War II so World War
II um was uh accompanied by a number of
Charity sales uh the charity sales were
called red cross sales uh wealthy
individuals would clear out their seller
um the wines would be auctioned uh
people would bid High um and this was a
sort of P of helping the war effort um
but in the process they appear to have
pushed up prices for other wines as well
so rather oddly there was a a bubble
this is not champagne but there was a
bubble in the in wine prices uh over the
war which then which then uh did
disappeared and there strong strong
growth over the last half century with
some periodic setback and what we find
is that there is um uh a noticeable
relationship with uh the stock market's
performance so here's a few of them
we've left out the violins because the
violins um would although we've got
these year-by-year
numbers um we don't we haven't assembled
the underlying data there substantial
positive correlation between equities
and wine returns which does suggest
there's a sort of why there's um uh a
wealth effect here that is that some of
these Collectibles appeal more when
people are more wealthy and they tend to
be more wealthy at times when the stock
market has done well uh and there
similar correlations but they're not
tied to one another um so although
transaction costs are high if this is
something which you're doing not to
invest but to
enjoy um you can see the performance is
substantially inferior to that of
equities it's quite similar to the
performance that Paul showed you of
equities ignoring the dividends so if
you would value the psychic dividends of
knowing that your wine seller is a
wonderful wine seller uh or of people
your your guests admiring the artworks
on your wall if that's roughly
equivalent to the financial dividend you
would get from equities then the two are
are Level
pegging I'm going to end with uh um
sinfulness um and uh this has become in
investment circles quite a Hot Topic
over the last few years the the question
of uh how you behave as a responsible
investor is typified by uh the sorts of
books you can find in the area Peter
Cho's book the SRI Advantage is
subtitled why socially responsible
investing has outperformed
financially and John Harrington has a
book investing with your conscience how
to achieve High returns using socially
responsible investing so the idea is be
responsible and you will buy into compy
that people value and in investing in
companies which do good things you'll
perform well as an
investor so the Saints the saintly
companies or investing in saintly
companies will be rewarded for
you uh now those may not be the books
that you like uh let's start with this
one on the right Caroline waxler's book
how to crush the market with Vice based
investing so she sells the idea of
stocking up on sinim but the one that
you might like the most is Dan aon's
book investing in Vice I have to read
this for you at the back the Recession
Proof portfolio of booze bets bombs and
butts and so the idea there is that if
you invest in Vice stocks and Dan erens
wrote this book and then launched a fund
known as the vice fund which will return
to shortly um the idea was that uh
Sinners get rewarded in the market that
investing in nasty companies is the way
to go if you want to be rewarded
financially so which view is correct
could both views be correct this is uh
one of the themes that uh Paul and Mike
and I followed in the
2015 Global investment returns
yearbook let's show you um the vice fund
the vice fund is here in Blue from its
launch date onwards and then I've taken
a fund which was launched just before
the vice fund
fund and rebased it to the start date of
the vice fund so uh you can see that you
were a third to a half wealthier
depending on the date that you choose on
the right hand side investing in Vice
rather than the Vanguard uh social Index
Fund which invests in stocks that have
been screened by footsy the index
compilers to be uh invested in really
nice companies which make you feel
good um
so Vice in this case beat virtue by 1.7%
per year there's quite a lot of
supportive evidence from a range of
different uh researchers in this area
um let's just have a look at the
long-term evidence um Paul refers to uh
some of these nasty companies as as
companies that work in syn
stries um and the industries for which
we have long-term data are particularly
tobacco
alcohol uh you can see on this chart uh
two blue lines dark and light blue uh
for the performance of tobacco
companies you can see in two lines which
are variations of the Claret color um
the performance of the
market the US tobacco Series starts at
the beginning of
1900 uh and then what I've done for
convenience although the currency is
different is simply to link the British
tobacco series so the performance of the
the tobacco sector in the UK to the same
point uh that would have been applied at
that date uh in the US and then the
lower lines are the market and so you
can see from 1900 the two markets um so
if you look on the um leftand part of
this chart UK tobacco chain Linked In
This sort of way which may be a bit
unsatisfactory got 14.8 compared to 9 4
from the market but it's probably better
to look at the post 1919 period 13.1
compared to
10.3 and US tobacco earned you 14.6
compared to
9.6 uh from the US Stock Market as a
whole um the British tobacco Series
starts late because that's when the
tobacco index came into existence um
when it comes to alcohol uh the
Americans messed things up for us
because they have a similar Gap but it's
not at the beginning it's it's in the
middle because of prohibition so the
chart would be a bit more difficult to
to to compile but if we just look at the
UK um the alcohol industry was the best
performing industry that you could find
that has a complete history from 1900 to
the beginning of this year so um how to
I interpret
that to interpret that we need to think
a little bit about whether people like
particular sorts of Investments and we
can perhaps gain some insight by looking
at investing in countries that are nice
or not so nice we don't have really
long-term data on um uh on the equities
of different countries because the
ranking those countries by the by by the
standards of behavior in those countries
is a little bit more difficult uh in the
second half of the 1990s the World Bank
uh started producing estimates of
various forms of governance in different
National markets they cover 150 uh
countries um and they have six different
criteria one of which I'll focus on
which is corruption um and uh they
produce their corruption measures based
on surveys which typically depending on
the the the different governance
measures but typically uh eight to 10
different measures which they're
averaging together and so we've taken
all countries which in 2000 were part of
the foot world uh index series uh which
was uh 40 40
markets or approximately 40 I can't
can't remember was exactly 40 or or just
to shade over um and what we've done is
we've taken uh those which were scored
as being excellent on these
measures um any Canadians here you're
beyond
corruption but so are the British so we
are excellent good
uh that's the Americans few of those
there yes um so Americans get a a
corruption score which is it's a pretty
straightforward country but isn't scored
the highest um their scores uh range
between min-2 and a half and plus 2 and
a half uh and so if it's between zero
and one we just label this for
convenience acceptable and then there
being on the wrong side of zero which
mostly is sort of countries where you
could have guessed that they would have
a lower score um but uh about one
quarter of the countries it's 13
altogether um have a poor rating it's
interesting to look at their performance
over time and um uh although this data
only covers one and a half decades uh
you can see that uh the poor poorly
governed or in this case uh um uh
supposedly corrupt markets are ones
where equities did better this coincides
to some extent with Emerging Markets um
which um have improved their governance
and standards of behavior over time but
you could interpret this as being
indicative of the fact that there's a
risk exposure there and people would not
pay as much for uh a similar investment
in a country where governance standards
are low compared to one where they're
high so returns were highest in the most
corrupt countries we have a number of
other bits of evidence which we cite in
our written work why might in pay well
oddly enough um one explanation is that
responsible investors are what causes
all of this if responsible investors
have an
impact then if enough investors avoid
Vice businesses that will depress the
share prices of those companies if it
depresses their share prices they'll
offer higher expected returns and those
higher expected returns are available to
those who are not so troubled by
investing in tobacco weapons uh uh
gambling and so
forth um and there is another
possibility and that is that the higher
rewards may also be a kind of risk
premium a premium that you get because
overhanging these companies is the risk
of uh litigation the risk of further
regulation and so
forth so let me uh make a few concluding
remarks I know we've overrun uh somewhat
but I'll just like to have a couple
couple of slides which take you through
some of these issues I'm going to start
largely with the topics that Paul was
talking about um what should you be
asking yourself um first of all we'd say
that it's important to ask what are the
risks um that you face and which of
those risks are rewarded so Equity risk
it's clear right from the beginning and
from your first Finance course that
other things equal if you had two
Investments um with the same expected
return the one that's more volatile is
less attractive there's maturity risk
maturity risk isn't quite so
straightforward Paul's talked about
credit risk and there's lots of other
Factor exposures which um we haven't
spoken about but uh which which we do
enjoy writing
about to address those risks and and and
whether you would uh um want to go for
those that are rewarded you have to ask
what risks you can tolerate you need to
think about issues such as your age
income wealth your needs liabilities
your motives for requests and in
particular the language of investment
has moved in the last uh uh couple of
years Perhaps Perhaps the last four
years to talking about what you would do
in the bad times so your planning is not
for what you expect but for the unlikely
events that would be
painful um you should always go for a
free lunch if it's really free people
often spot free lunches that aren't free
but there are a number that are there
Paul's talked about
diversification uh in any MBA course
here if you can't think of the answer in
a finance course uh any thinking student
shouts out diversification decent chance
you get some marks for class
participation there are some others um
you might think about uh tax breaks that
you get uh and the efficiency of of uh
the tax efficiency of your investment um
and so there's no point in giving money
to the government if you want to make a
charitable donation afterward you can do
that but you might want to send it
somewhere else um uh for fixed income
investors that are often guarantees so
uh I don't know whether you've heard the
phrase in relation to Banks too small to
fail uh so I'm talking now about Britain
in Britain a couple who invest money
with a financial institution are
guaranteed by the British government to
receive uh compensation of up to
£170,000 and there's no limits to the
number of these Banks you can put money
with if you put all your money and it's
just larger than that sum um in one big
Bank of course we know big Banks can
fail they have but little Banks can't
because the British government will
compensate you so uh they won't probably
be allowed to fail because if You' got
lots of little depositors this are just
too expensive for the government to to
uh uh uh to cope with so
guaranteed uh funds uh and enable you to
earn rather more than you could by
putting money straight in the hands of
the British government because uh you'll
earn a much higher return and have no
more risk than you would if you bought
guilts you should be minimizing fees uh
and uh Ultra lowcost investing uh is is
now uh uh big business I don't know
whether you've watched the uh um author
of random walk down Wall Street Burton
malill who's uh investment company in a
matter of a couple of years has brought
in enormous enormous sums from uh
offering um a tax efficient uh and
lowcost investing um and finally the
other free lunch is to have liquidity
when you need it so you can invest in
ways which will generate cash when you
need it or ways which won't uh and if
you're able to realize the cash that you
need at the time of you're choosing uh
that's much less costly than realizing
cash at the wrong time where you have to
pay for
liquidity should you do it yourself at
business school we always thinkers
though we're teaching people to do stuff
for themselves um but in investment
there's the heavy approach to do it
yourself um and you should do it if you
enjoy it um picking stocks May for you
be like collecting stamps for other
people um there are other ways of doing
it there's what we would call
do-it-yourself light keeping it very
simple uh and very cheap using Ultra
lowcost uh um uh exchange traded funds
um it might be enough to have some cash
that earns a low interest rate to have a
long Bond sitting alongside it and a
global ETF and that will cost you almost
nothing to run um or you might want to
use advisers or managers you might want
to consider the costs of doing that you
might want to consider the conflicts
that they face the complexity of it all
and whether they really are capable
enough so those are our comments on
financial investment what about uh
Collectibles are there any questions to
ask yourself there which may also give
you some insights on financial
investment um here's a picture which
came up for auction not so long ago it's
a
goang um here's another picture it's a
Goan um
uh the one on the left came up at sbis
in May
2000 the one on the right came up at
Chris's in May
2000 which one would you
buy it may help you to know about the
paperwork um the one on the left came
from the New York art dealer
Sakai uh the one on the right had a full
certificate of
authenticity Zaki had a good reputation
which one would you buy
they can't both be be The Real McCoy and
um what Sakai had done was he bought a
high quality but still second tier
artworks he then had replicas painted he
took the real artwork round for
authenticity and he would then hang on
to it for a long time and um so the
Clone with the certificate authenticity
was provided for the original one until
by fluke having passed on the original
original rather than the copy they both
ended up at the two auction houses at
the same time which caused some
embarrassment um so you've never spotted
it that's the
fake and finally let me end up with the
the same sort of question for you which
bottle of Petrus would you
buy well let me let me make it slightly
easier is there anything you could
eliminate which bottle of petus would
you not buy
so well who says you would not buy this
one not by this
one not by this
one not by this
one why would you not buy this
one well somebody's drunk it yes but
actually you order a bottle of petress
in in in a restaurant and try to hang on
to the bottle afterwards there's a
market in those
um this one's a bit
scruffy they are different vintages we
can put that to one side you can barely
read the vintages from where you are can
you spot any other differences apart
from a scruffy
label yes anything
more one from the right looks too new
this one looks too
new um anything else you can say about
that look at the bottle are there any
differences in the bottle look at the
capsule so you you got the right answer
that's the
fake the bottle is not a Petrus bottle
it's different and the capsule is not a
petus capsule uh you would rather have
the one on the extreme left rather than
the one that is labeled fake here so
when it comes to um when it comes to
investing in Collectibles it isn't quite
a straightforward as Paul's favorite
solution of buying a a global Index Fund
where if there's 8,000 in the van
Vanguard Global fund out of those 8,000
Securities you'll have all of them in
proportion to their value you can't do
that for Collectibles so you have to
take advice and and and focus in taking
advice you'll end up with a a
considerable exposure it's an
undiversified portfolio there is no
choice um you need the right sort of
advice um and the sort of wisdom that
you can do without as an equity investor
is essential if you're going for
Collectibles and I think that covers
everything we're going to talk about so
uh we' overrun a bit let me just tell
you where you can look at more of these
things that we've been discussing we've
been producing these books uh since uh
the beginning of the 2000s but we've
published them with uh credit s for um a
number of years now since 2009 and so
2009 2010 different theme each
year um and you can download them all
going to an incredibly complicated
credit s address or put in this tiny URL
tiny url.com DMS which stands for our
initials yearbook 2015 or you can put
DMS YB 2014 or 2013 or whatever so uh it
won't be printed for you but uh uh you
can access them on the web easily that's
all we have to say thank you for
listening
is there any evidence
resarch invol if you start with a
lump straight
into is that a no I I I have strong
views about this so Paul is probably
much more nuanced than me so I think C
is considered judgment I think you
should get it from the person who's got
the strongest views actually um yeah the
the problem about investing everything
in a lump sum is it doesn't quite
describe life anyway I mean we we tend
to get our wealth gradually over time um
the lump sum approach you hit the danger
of uh it might be just a bad starting
time and um the returns we've been
talking about obviously depend quite a
lot on when you start and when you when
you finish and there's a lot to be said
for the drip feeding in U because it
it's a good discipline and it forces you
to invest both when you think the
Market's overvalued and when it's
undervalued um and you know on average
you you'll pick up a bit of each so I I
I actually prefer and think it's a more
realistic description of where we come
from uh the the gradual investment and
saving over time starts off with a l sun
over what sort of period would one be
looking at for a drip Fe oh if you if
you start off with a lump sum should you
drip feed it in or not well I mean I
think if you start off with a lump sum
you've got you've got to make an asset
allocation decision and you've got to
invest it U but uh and and I I think you
you need to form a view I think you
would be foolish whatever the timing
whatever your thoughts were on the
market not be at least partly at
equities um but I think that's
completely wrong what I think that's
completely wrong do you yeah I think if
there is an optimal asset mix to deviate
from your optimal asset mix by holding
loads of cash which is probably what
it's going to be for a prolonged period
rather than holding your optimal asset
mix is a big mistake suppose you think
that the optimal asset mix is say 80% in
equities and you're going to start with
10% and then 20 and then 30 you're
underweight equities for a long period
you may want to have make ensure that
over the the period of your savings
it'll work out right so you may have to
be that was what I saying drip feed it
in I think that's a mistake no no no
don't if if you start with a lump sum if
you start with a lump sum you you have
to make an asset allocation decision and
you have to decide what to do with it
but most of us have savings that don't
arrive in a lump sum they arrive
gradually over time so that that's oh
that's just dodging Mark's question
right thank
you um we're economists what's
surprising is you only got two answers
from us
yeah You' covered an amazing amount of
ground was unbelievable set of assets
there's one thing that you didn't cover
which is investing in selling things you
don't have which is a head and short
activity maybe you should next time try
and produce returns for
shorting that yeah
well maybe you have
no I sent an email to Paul saying what
we had not
done we thought we might uh use up the
full hour that was allocated to us what
we had not done is to talk about uh
other sorts of risk Premier uh and so
when people talk about the superior
return from small companies compared to
large companies um that would be the way
we put it up in a generalist way on a
slideshow but actually if you implement
that it's a long short long small
companies short large companies or long
short between value and growth and so
forth so we got awfully close to it um
and um we didn't add that in but we do
we we we do have quite a bit on on
Premier which is very very very close if
you just short stuff um it's crazy uh
because I mean if you short equities you
you are shorting the equity risk premium
and and that's a sure way to to lose
money if you do what a hedge fund does
that that's much more s sensible um the
the idea there at least in principle is
that you don't just take advantage of
your good buying ideas but you take
advantage of your good selling ideas and
and you therefore have long and short
positions in stocks but also in factors
and and so on the only problem with
hedge funds is they come at um a very
large price and uh so it falls foul of
our uh advice on looking for lowcost
Investments and the evidence on Hedge
fund returns um is is quite patchy
although it's quite difficult to
interpret because not all of the hedge
fund evidence is uh is there in the
sense that some of the more successful
funds or some of the less successful
funds simply don't disclose what they're
doing so the databases are are are
pretty imperfect but in so far as we can
tell hedge fund returns after costs are
not a brilliant deal the idea is a
pretty good one
I thought I was getting a few friends
that are interested in wine but you're
going to not end up with any friends in
the audience from from the hedge fund
Community are
you they they can they can defend their
record confident are you given the
various debates about inflation in
disease that your real rates are
yeah I mean inflation indices get really
flaky when you go back in time and um
for example in the UK from 1900 onwards
they were measuring something like 20
Commodities they were intended as a
measure of what the working classes
bought um that was what they were
designed to produce uh they were not
measured very effectively then there's
all the debates even today about CPI
versus RPI um and then there's all the
debates about technology and its impact
on inflation indices so if you bought a
television in 1950 it's a rather
different sort of Beast than the
television today or if you bought a
mobile phone 15 years ago it's rather
different from today's smartphone
technology you just compare the prices
you're missing the technological
advances so yeah it's it's it's a it's a
big it's a big issue um and uh all you
can really do is is use the best you can
find and put in some health warnings
about it which is what we try we try to
do but I think the the evidence on the
extent to which
long-term exchange rate changes track
relative inflation is quite compelling
even though the indices for those those
relative inflation numbers are uh are
individually flaky uh and so as you saw
if you jump away from looking at local
currency returns adjusted for local
inflation using flaky indices to looking
at common currency Returns the stories
that we pursue
are they tell the same same
tale
so um I think I think it is surprising
that over the long term indices which
are really Som very thin on these
countries still produce uh performance
numbers that are surprisingly close to
what you would expect just looking at
exchange rates
changes how would be the average
wage as an
indices
um yeah I mean the average average wages
uh
historically forgetting the last few
years have have risen faster than prices
and uh so again it depends what you what
you actually want to measure here but if
you're if you're trying to measure your
purchasing power I think I think
yeah I think I think if you're trying to
measure purchasing power you're you're
better sticking to indices of of price
levels rather than of of wages um of
course it's reversed over the last few
years with with wages lagging behind
prices one last question yeah so so one
question U what is your view about using
leverage to and in particular if you're
investing in a low relatively low risk
asset class and that doesn't fit your
RIS profile and therefore you level it
up in order to match your risk profile
do you have you have you thought about
that it's called the ltcm strategy so
carry on yeah yeah
yeah yeah I
mean most most of us uh don't have
levered portfolios we have we have
portfolios that that actually have a
strong element of of cash and and bonds
and soone in it um so if you want to
lever up the first thing you do is you
you eliminate the cash and you you cut
down on the bond content uh but if you
want to pick on a specific asset class
which you think is seriously undervalued
then by all means use leverage but I I
think you're you're you're stepping out
of the the kind of you're stepping out
of the framework we were working within
tonight which is you know what the
average person should do with their
money or the the informed person to a
kind of expert mode uh as soon as you do
that and that's fine if if your hobby is
is trading uh and setting up clever
strategies um there are people who do
extremely well on that and there are
some here tonight uh but that that's I
think a bit beyond the scope you know
there for most of us that's a don't try
it at home kind of
strategy I'm going to stop there if I
may um we proud ourselves having
combination of rigor and relevance and I
don't think you could have seen a much
better example
tonight in terms of the underlying work
that went into this and the interest of
what's emerged I can't believe all say
that at least one precon long hell
preconception each of us hasn't been
blown out of the water by some of these
things proding Eloy Paul and thank you
very Mike finally joined us here this
evening thank you very much indeed

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URL: https://www.youtube.com/watch?v=P83T2HtioZI

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URL: https://www.youtube.com/watch?v=N-uZU3ihfvc

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### Prof Naik, Director Hedge Fund Research Centre,  London Business School on "Blue Chip" Hedge Funds 1
URL: https://www.youtube.com/watch?v=pXYiQ4G0dDY

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