Impact case study database

This research has directly led to the introduction of new financial products and trading strategies by important financial institutions in the UK, Switzerland, and Italy, with significant impact and reach in the global asset management market. Beneficiaries of the impact are the companies introducing the new products and strategies and, ultimately, the multiple classes of investors affected by their availability. This includes private individuals and commercial investors, as well as pension funds and other major institutional investors.

Barclays’ flagship trend-following index

“Buraschi-Barclays Trend Indexes” have been launched by Barclays to provide cost-effective hedge-fund like returns to pension and endowment funds that wished to invest in the Commodity Traders Advisers (CTA) segment (with industry-wide assets of around $355bn in 2018). These indexes provide exposure to 78 underlying assets (commodities, equities, foreign exchange and bond & money markets). Products derived from the indexes provide high performance returns, which are de-correlated from the equity market, with a good return profile (especially during crisis periods). Moreover, these products are transparent, ruled-based, and cost-effective, in contrast to alternative “hedge-fund like” investment solutions that are traditionally opaque and expensive. To quote Farouk Jivrai, Director of Barclays QIS: “ Over the last three years, the Barclays QIS Team has worked with Professor Buraschi in an industry-academia partnership to design and develop what we consider to be the most innovative, transparent and cost-effective Trend-Following strategy for our clients. This strategic academic partnership has allowed us to continue to push the frontier of our business and be a genuine partner for our clients” […] “ the partnership has proven to be very successful” (Source 1).

The “Buraschi-Barclays Adapting Trend Index” is now Barclays’ flagship trend-following index. It is commercially distributed in a variety of formats (such as total return swaps and capital protected notes) and quoted by Bloomberg. As Farouk Jivrai explains, the “Buraschi-Barclays Adapting Trend Index” has been taken up by “ institutional clients, such as pension funds, large asset managers, and insurance companies. We have also designed a series of more specialized Buraschi Barclays Adaptive Trend Indices for institutional clients with particular objectives in terms of the defensiveness of their portfolio. These customised versions have different objectives and constraints in terms of volatility, commodity and equity exposure, correlation with the S&P 500 Index, specific drawdown tolerance, and crisis risk, for example” (Source 1).

The indexes have been adopted by asset managers, pension funds, sovereign wealth funds, and insurance companies. Banca Zarattini & Co. of Switzerland made a careful comparison before concluding that the Buraschi-Barclays Adaptive Trend Index is “ the most innovative, transparent and cost-effective Trend-Following strategy available in the market at the moment” Leonardo Falconi, Banca Zarattini &Co,Switzerland (Source 2), and he also writes that “ Since we introduced it in our portfolios, we have been impressed by its performance even during a very challenging market period. It has offered stable returns when markets have corrected and, as such, we view it as an excellent risk mitigator for our clients’ portfolios” (Source 2)

A mutual fund for risk-averse investors

Fideuram Asset Management, part of the largest Italian private bank (Intesa Private Banking Division, with over €200bn under management), has launched a new mutual fund aimed at risk-averse retail investors. The asset allocation is based on the measures of risk developed in Distaso et.al ( Ref 6), allowing for frequent updating. The fund integrates two popular allocation approaches based on risk and on macro-regime, and was designed to offer the cheapest possible risk-management. While the S&P500 index fell 16.3% as Covid lockdowns spread during March 2020, the fund lost only 6.3% of its value; the volatility of its returns is one-quarter that of the S&P500 (Source 3). The fund was launched in September 2019 and has already attracted €100m of investors’ funds. The company reports that “it has been of significant advantage to our business” and that they are “confident that this kind of funds [sic] may be [a] new flagship in the space.” Renato Zaffuto, CIO Fideuram asset management (Source 3).

Building on this success, Fideuram have again used Distaso’s approach to launch a new internal fund for an insurance unit-linked product (Source 3). Beyond its immediate application in the products referenced above, research by Distaso has enhanced the company’s professional understanding of portfolio-management. Luca Simoncelli (Fund Manager at Fideuram) writes the following: Distaso’s “ contribution in the areas of risk budgeting and portfolio optimization through a risk based approach have been instrumental in building our knowledge and expertise in that area of portfolio management” (Source 4).

Improving a trend-following strategy

Unigestion – a global $20 billion asset management company headquartered in Switzerland - changed the design of a systematic trading strategy in response to Ref 7 and Ref 8. In particular, the trend-following strategy used for $80m of assets was revised to continuously monitor the pairwise correlations between those assets and respond to these dynamically. This improved performance by 0.43% a year in back-testing, very noticeable in a low-return environment (Source 5). Another way to illustrate this is that the dollar value of the allocation to the trend-following strategy in December 2019 was around $80 million. This means that the value added in terms of dollars was $344,000 (0.43 percent multiplied by $80 million) in 2019. The ultimate beneficiaries are Unigestion’s investors, such as pension funds and insurance companies, and the company reports that the “strategy has been performing well compared to its peers since its launch. … [It] fulfils an important diversifying function”, according to Dr J. Teiletche, Managing Director of Unigestion (Source 5).

In addition to this, the research outlined in Ref 7 and Ref 8 informed the conceptual thinking – and subsequent policy advice – of the International Monetary Fund (IMF). In 2016 Professor Kosowski was selected to participate in the IMF’s technical assistance mission to the Russian Central Bank. Here, he presented research on how correlation risk in hedge funds can be alleviated. As explained by Dr Miguel Segoviano, IMF Mission Chief, “ the relevance of this research for IMF member countries lies not only in the role that alternative investment funds play in developed and emerging markets but also in the conceptual understanding of correlation and systematic risk” […]

“this was of relevance to the Russian financial regulator as it contributed to the conceptual thinking on how to develop the Russian investment fund industry” (Source 6). As a result of this, the Russian central bank added fund flow measures - as proposed by Kosowski’s research - to the framework that it uses to monitor systematic risks in the economy.