CIO Course in Investment Management

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CIO Course in Investment Management

• Austin, Texas
• June 6 8, 2007

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Outline of Course Topics

• Topic One Expected Returns Measuring the Risk
  Premium
• Two Important Concepts in Investment Management
• Investor Role Compensation, Expected Return
  Components
• Measuring Expected Returns Return Components
• Definitions and Concepts Historical Evidence
• The Equity Risk Premium U.S., Global, and
  Chilean Experience
• Methods for Measuring Equity Risk Premiums
• Historical Estimates
• Ibbotson Associates, Fidelity Investments/Global
  Financial Markets
• Fundamental Estimates
• Fundamental Approach to Risk Premium Estimation
• Examples Fama-French, Claus-Thomas,
  Arnott-Bernstein
• Economic Estimates
• Economic Approach to Risk Premium Estimation
  Black-Litterman, Ennis Knupp Associates
• Survey Estimates
• Examples CFO surveys, Ennis-Knupp Associates
  managers, UTIMCO consultants, TRS
• Topic Two Asset Allocation Decisions
  Strategies
• The Asset Allocation Decision Overview

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Outline of Course Topics (cont.)

• Topic Three Portfolio Risk Analysis
• Tracking Error Concept Examples Passive
  Active Mutual Funds, Chile AFPs
• Risk Expected Return Within a Portfolio
• Multi-Asset Class Examples
• Diversification Portfolio Size
• Advanced Risk Analytics
• Total Portfolio Risk vs. Marginal Asset Risk
  Within a Portfolio
• Marginal Contribution to Risk
• Portfolio Risk-Tracking Example Chile Pension
  Sistema
• Measuring Portfolio Downside Risk
• Semi-Variance vs. Lower-Partial Moments Examples
• Topic Four Portfolio Optimization Analytical
  Techniques
• Overview of the Portfolio Optimization Process
• Developing the Efficient Frontier Notion
  Analytical Solution
• Mean-Variance Portfolio Optimization
• Unconstrained Constrained Optimization
• Measuring the Cost of Constraint
• Examples Black-Litterman Forecasts, CLP USD
  Pension Investing

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Outline of Course Topics (cont.)

• Topic Five Portfolio Optimization Case Studies
• U.S. Public Pension Fund Texas Teachers
  Retirement System
• Background Investment Problem
• Initial Allocation Overview of Mean-Variance
  Optimization Process
• Simulation-Based Forecasted Process How Much
  Equity in Portfolio?
• Optimization Outcome Strategic Asset Allocation
• Chilean Pension System
• Background Investment Problem
• Base Case Economic Assumption
• Adjusted Mean-Variance Analysis Notion of
  Resampled Efficient Frontier
• Strategic Asset Allocations Unconstrained
  Constrained Portfolios
• U.S. Public Endowment Fund University of Texas
  System
• Background Investment Problem
• Initial Allocation Overview of Mean-Downside
  Risk Optimization Process
• Economic Assumptions Notion of Potential
  Value-Added (PVA)
• Decision Factors Selecting From a Set of Optimal
  Candidate Portfolios
• Topic Six A New Approach to Guaranteed Income
• Retirement Planning Challenges

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Outline of Course Topics (cont.)

• Topic Seven Identifying Superior Active
  Portfolio Management
• Defining Superior Active Management
• The wrong question
• The problem with benchmarks and peers
• Return generating models
• Lessons from Prior Research
• Empirical Methodology
• Data
• Fama-French model
• Results
• Distribution of alphas
• Time series and cross-sectional regressions
• Economic Significance
• Portfolio strategies
• Logit models
• Investment Example
• Topic Eight Demographic Changes and Economic
  Growth
• Population Growth and Economies

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Outline of Course Topics (cont.)

• Topic Nine Teacher Retirement System of Texas
  Asset Allocation Strategies Organizational
  Design Issues
• Overview of Organization with Britt Harris, CIO
• - Past and Future Practices
• Investment Process at TRS
• Asset Allocation Security Selection
• Internal vs. External Management
• Open Discussion of Pension Fund Investment Issues
• Introduction to TRS Investment Staff and
  Operations

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Biographical Sketches of Instructors Keith C.
Brown
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Biographical Sketches of Instructors W. Van
Harlow
Van Harlow is a Managing Director of the Fidelity
Research Institute, a unit of Fidelity
Investments, the largest mutual fund company in
the United States, the No. 1 provider of
workplace retirement savings plans and a leading
online brokerage firm. Dr. Harlow joined
Fidelity in 1991 as a Portfolio Manager and has
held the positions of Director of Investment Risk
Management and Director of Quantitative Research
for Fidelity Management Research Co. Dr.
Harlow was appointed President and Chief
Investment Officer of Strategic Advisers, Inc.,
in November 1997 and assumed responsibility for
Fidelity Asset Management Services in July 2001.
Prior to joining Fidelity, Dr. Harlow was a
vice president at Salomon Brothers Inc., in New
York City, where he was responsible for
quantitative investment and trading strategies.
Previously, he was an assistant professor of
finance at the University of Arizona from 1986 to
1989. Dr. Harlow received a bachelor of arts
degree in physics and mathematical science from
Rice University in 1978 and an MBA and Ph.D. in
financial economics from the University of Texas.
He holds a Chartered Financial Analyst (CFA)
designation. Dr. Harlow is a 1990 recipient of a
Graham and Dodd Award from the Financial Analysts
Federation and a Smith Breeden Distinguished
Paper Award in 1996 from the Journal of Finance.
He was Editor-in-Chief of the Financial Analysts
Journal from 1993 to 1998. He has also served on
the Council on Education and Research and the
Research Foundation for the CFA Institute. His
research publications have appeared in such
journals as Journal of Financial Economics,
Journal of Finance, Journal of Financial and
Quantitative Analysis, Financial Analysts
Journal, Financial Management, Journal of
Portfolio Management, Journal of Investment
Management, Journal of Applied Corporate Finance,
Advances in Futures and Options Research and
Journal of Fixed Income.
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Access to Course Materials and Instructors

• You can download electronic copies of many of the
  course materials (e.g., course outline, course
  notes, Excel spreadsheets) from the following
  websites
• www.mccombs.utexas.edu/faculty/keith.brown/AFPcour
  se3.htm
• www.fidelityresearchinstitute.com
• You can contact Keith Brown by e-mail at the
  following address kcbrown_at_mail.utexas.edu
• You can contact Van Harlow by e-mail at the
  following address van.harlow_at_fmr.com