The Third Public Investors Conference
2-3 November, 2010
Basel, Switzerland
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On 2-3 November the Bank for International Settlements, the European Central Bank and the World Bank jointly organised a conference on Portfolio and Risk Management for Central Banks and Sovereign Wealth Funds. The conference, by invitation only, was targeted at quantitative experts from the community of central banks and sovereign wealth managers as well as academics.
The main aim of the this conference was similar to previous Public Investor Conferences: to create a forum where academics and private and public sector investment professionals can meet to discuss and ponder the issues of specific relevance to public sector investors. It is well recognized that public institutions differ markedly from their private sector peers in their investment activities. Investment rationales, preferences, eligible investments, governance structures and accountabilities as well as aspects relating to the availability of human and technical resources distinguish public investors. These idiosyncrasies have profound effects on how portfolio and risk management activities are organized and performed in public sector institutions.
Having discussed initial reactions to the financial crisis at the Second Public Investors Conference held at the World Bank in Washington DC, the 2010 Conference focused on how public investors are revising asset allocations and investment processes in response to the new financial market environment. Faced with high growth rates in foreign reserves and other pools of publicly managed funds, public investors are beginning again to discuss broader diversification of assets.
Judging from the contributions to and discussions at the conference, central banks are concentrating their search for diversification opportunities on investment alternatives among sovereign obligations, including inflation-linked instruments and investments denominated in currencies other than those represented in the SDR basket. At the same time, public investors are becoming more aware of possible tension between what is optimal at the level of an individual investor and what might be required from the perspective of stability of financial markets. In terms of methodologies and techniques, similar to other institutional investors, public investors have accelerated efforts to develop and implement approaches for the management of market and credit risk that take on board lessons from the financial crisis. Also, further improved techniques for and oversight of active management of public funds received considerable attention at the conference.
The proceedings of that conference are published in a BIS Paper.
Agenda
Tuesday, 2 November
| 08:15 a.m. | Registration |
| 09:00 a.m. | Welcoming remarks |
| 09:15 a.m. | Liquidity, international reserve assets, and a dysfunctional international financial arrangement |
Session 1: Reserves Management
| 10:15 a.m. | Managing foreign exchange reserves in the crisis |
| 11:30 a.m. | Diversifying market and default risk in high-grade sovereign bond portfolios |
| 12:15 a.m. | Sovereign credit scorecard |
Session 2 (Breakout): Active Management / Portfolio Construction
| 02:30 p.m. | Simple and optimal alpha strategy selection and risk budgeting |
| Including linkers in a sovereign bond portfolio: an HJM approach |
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| 03:00 p.m. | Active portfolio management in the public sector |
| Hedging inflation risk with domestic investment and foreign currency in a developing economy |
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| 03:30 p.m. | Explaining the returns of active currency managers |
| Fundamental allocation for government bonds portfolios |
Session 3 (Breakout): Quantitative Techniques / Risk Management
| 04:30 p.m. | Optimal active portfolio management and relative performance drivers: theory and evidence |
| An option theoretic model for ultimate loss-given-default with systematic recovery risk and stochastic returns on defaulted debt |
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| 05:00 p.m. | Portfolio optimisation and long-term dependence |
| Securitisation rating performance and agency incentives |
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| 05:30 p.m. | Combining equilibrium, resampling and analyst's views in portfolio optimisation |
| Stress testing central banks and sovereign wealth funds |
Wednesday, 3 November
Session 4: Sovereign Wealth Management
| 09:00 a.m. | Rethinking asset allocation for institutional investors |
| 09:45 a.m. | The impact of foreign government investments: sovereign wealth fund investments in the United States |
Session 5: Reserves Management
| 10:45 a.m. | Is gold a hedge or a safe haven? An analysis of stocks, bonds and gold |
| 11:30 a.m. | Brazilian strategy for managing the risk of foreign exchange rate exposure during a crisis |
| 12:15 | Should larger reserve holdings be more diversified? |
| 01:15 p.m. | Closing remarks |