Hedge funds have become an increasingly important asset class in recent years. This paper discusses the asset allocation decision of an investor who is considering investing in hedge funds. We develop a simple procedure that may help in making this decision when the assets consist of a core equity portfolio, the risk-free asset, and a hedge fund. A regime-switching framework is used to model the joint returns of the hedge fund and the equity market. We use monthly intervals so that the regimes can change only at most once a month. Within each regime the returns on the two risky assets are bivariate lognormal with constant parameters. These parameters are estimated from the empirical data. We show how to determine the optimal allocation of an investor, such as a pension plan, to hedge fu...
It is a great pleasure to congratulate Professor Phelim Boyle and Sun Siang Liew on this stimulating and timely paper, which provides a valuable account of the asset allocation problem of an investor when hedge funds are included as investment vehicles. The results presented in this paper are of much interest to both the actuarial and the finance profession. It is commonly known that returns from hedge funds exhibit nonlinear behavior, which may be attributed to highly leveraged and unconventional trading strategies adopted by hedge fund managers. Under the regime-switching models, those important empirical features of hedge fund returns can be generated by the presence of a hidden Markov chain. The regime-switching models are nonlinear and non-stationary. The asset-based style model ca...
The Securities and Exchange Commission is reopening the period for public comment on amendments it originally proposed in Securities Act Release No. 9126 to allow interested persons to submit comments on the results of investor testing regarding target date retirement funds. The rule proposal would, if adopted, require a target date retirement fund that includes the target date in its name to disclose the fund's asset allocation at the target date immediately adjacent to the first use of the fund's name in marketing materials; require marketing materials for target date retirement funds to include a table, chart, or graph depicting the fund's asset allocation over time, together with a statement that would highlight the fund's final asset allocation; require a statement in marketing mat...
This study illustrates that the choice of savings vehicles [e.g., taxable account, Roth IRA, or tax-deferred accounts such as a 401(k)] affects the portions of principal effectively owned by, returns received by, and risk borne by individual investors. This study examines the implications of this analysis for (1) the calculation of an individual's asset allocation, (2) mean-variance optimizations, and (3) asset location. For example, it illustrates problems when traditional mean-variance optimization is applied to an individual's portfolio. Separately, there is broad agreement among scholars that we should distinguish between pretax funds and after-tax funds when calculating an individual's asset allocation. This study suggests an approach to measuring an individual's asset allocation. ...
JERSEY CITY, N.J., Nov. 2, 2011 /PRNewswire/ -- Lord, Abbett & Co. LLC ("Lord Abbett"), an independent, privately held investment management firm, and Wilshire Associates Incorporated ("Wilshire(R)"), a leading global, independent investment consulting and services firm, today jointly announced the availability of Wilshire/Lord Abbett Pro Active Income Solutions through Envestnet, a leading provider of wealth advisory solutions to more than 20,000 financial advisors. Designed to deliver targeted income, these solutions offer the clients of s access to Wilshire's dynamic asset-allocation capabilities and Lord Abbett's comprehensive suite of fixed-income mutual funds to provide exposure to timely opportunities in the fixed-income market. Launched in June 2011, Pro Activ...
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