There is a way out

This year, our 9th InFormation Course took place in Hamburg, the largest port in Germany and the second in Europe. It is a sheltered port located in the estuary of the Elba River, 110 Km from the sea, a position that has allowed Hamburg to steadily grow and become, in the XIX century, a cosmopolitan metropolis based on global trade and, today, the second city in Germany. With the objective of exploring the routes out of the safe ports that are available to us today, and identifying the problems encountered by those who sail in the open sea, what better choice for our conference?

As we already said at the end of the 2012 InFormation Course, “Investing in a world without risk-free assets”, it is not possible today for an investor to avoid risk altogether, even the sole market risk, because it would mean to accept zero or negative yields, in real terms, and therefore to fail as an institutional investor.

Broadening the perspective to the entire economic and financial crisis, which lingers on since 2008, we see the many obstacles that have piled up along the traditional routes followed by investors, even those thought to be safest: from the credit crisis and the crisis of the more complex credit-related financial instruments, to the government securities markets, to the potential liquidity bubble that today is also having an impact on the forex market. What are then the risks more likely to materialise in the near future, and how to deal with them? How to identify  and measure them, for a start? Over the last few years, we have learned that the strategic Asset Allocation process must be expanded to include new instruments, able to link the institutional objectives with the risk-taking assumptions and that consists in ALM or LDI-type measurement processes. Today, however,  it is necessary to take another step forward and take into account the many risks that have become more explicit and, above all, persisting in the new financial environment: market, credit, counterparty, liquidity risks, only to mention the most important.

The traditional analysis of portfolios and market opportunities based on the identification of the financial risk for each asset class is no longer sufficient: it is necessary to wear a new “pair of glasses” and integrate the type and size of the different risks in the evaluation model, in order to plan and execute the most appropriate initiatives to manage them.

The analysis of the risks becomes then even more important, but it must become a process carried out on a continuous basis and with the greatest possible awareness. It must be the compass on the basis of which the navigation at sea is constantly corrected, after the course is set through the strategic Asset Allocation process.

This considerable change in the investment process affects also the role of the advisor, who has to identify the new risks, use the appropriate instruments to measure them, and suggest operating procedures to tackle them quickly, given the increasing speed with which markets change. This will be increasingly the task of Prometeia Advisor: as we made clear during the InFormation Course in Hamburg, we make available all our competencies, studies and instruments to help institutional investors in these difficult market conditions, which require them to take charge more and more directly and promptly.

To indicate the issues we thought most relevant in this context, the programme of the 9th InFormation Course started with two presentations of Prometeia aimed at describing the risk scenario: how risks can be generated and distributed in the global macroeconomic scenario and how they can be transferred to the major bond markets, which, more than others, are vulnerable to a change in monetary policies.

The conference then continued with the presentations of the financial industry, which offered other comments on this issue, exploring the expected risk trends and potential opportunities from the point of view of each speaker, encouraging dialogue and the discussion with the institutional investors in the audience, again in large numbers.

This special issue of Anteo, as usual, makes available the abstracts of the presentations of the financial sector, which we hope will be a useful summary for those who could attend, and a contribution to the analysis for those who could not.