CERN CEO Takes Investment Chair at Lombard Odier Pension

The Switzerland-based CEO has taken on a complementing role.

(June 19, 2014) — The CEO of the CERN pension fund has taken over as chairman of the investment committee at Swiss fund manager Lombard Odier’s pension fund, aiCIO has learned.

Theodore Economou, who has led the pension fund for scientists and other staff at the CERN laboratories in Geneva since 2009, will conduct the first meeting in this new role next week. Economou, who has twice featured on aiCIO’s Power 100 list of influential investors, remains at the helm at CERN.

“We welcome Mr Economou as chairman of the investment committee of the Lombard Odier pension scheme,” Hubert Keller, managing partner at Lombard Odier, told aiCIO. “He shares our conviction that investors must concentrate on risk to build stable portfolio returns over time. We’ve been running our pension fund on a risk-based footing since 2009 and Mr Economou’s experience in setting risk budgets in his work on CERN’s pension fund will be a valuable complement.”

Economou took over the full-time investment role of the CERN pension last year following the departure of former CIO Gregoire Haenni. However, from the outset he had worked with Haenni and was integral in reforming the portfolio the pair inherited in 2009. At that time, the fund had a portfolio divided 60% to risk assets and 40% to bonds. It was 60.5% funded on an IAS19 basis, according to its accounts.

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“We look at risk management as two processes,” Economou told aiCIO last year. “One: the overall risk management process, showing us the acceptable risk constraints. This tells us what the size of the sandbox we can play in is.”

The Lombard Odier pension fund has been the testing ground for some of its products—including some if its smart beta approaches. The CHF1.5 billion ($1.67 billion) fund was a runner up in a corporate pension category at aiCIO’s European Innovation Awards.

Economou also sits on the investment advisory committee of the Virginia Retirement System in the US.

Related content: Power 100 Theodore Economou & CERN CIO Steps Aside

Big Funds are Not Beautiful, says Academic Study

If you want to keep outperforming, stay—or become—small.

(June 19, 2014) — Loading capital in to the largest funds may mean cutting back on your alpha potential, a study published by London’s Cass Business School has claimed.

David Blake, founder of the university’s Pensions Institute, Tristan Caulfield of City University London, and Christos Ioannidis and Ian Tonks from the University of Bath, pooled their expertise to study the effect of funds—and other significant factors—on its performance in a paper entitled “Improved Inference in the Evaluation of Mutual Fund Performance using Panel Bootstrap Methods”.

“Using a dataset of UK equity mutual fund returns, we find that fund size has a negative effect on the average fund manager’s benchmark-adjusted performance,” the paper said.

The authors created a new framework through which to measure fund performance, arguing that the current standard set-up omits factors that are essential for investors to consider.  It also used a universe of funds free of survivorship bias, by including those that were both created and liquidated between January 1998 and September 2008.

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Performance and management fees were deducted from final figures but entrance and exit were not counted.

“The coefficient on fund size is negative and highly significant indicating that increasing fund size has a material effect in lowering a fund’s performance,” the paper said.

The paper’s authors examined the effect of most highly educated managers coming into the largest fund groups and found they rarely outperformed in this environment. In fact, the move usually had a detrimental effect.

“Once we control for fund size and other fund-specific factors—in particular, family fund size—the average fund manager’s alpha for both gross and net returns is insignificantly different from zero,” the authors said. “This implies that if better qualified managers do manage the largest funds in the largest fund families—which is entirely plausible—they do not appear to deliver outperformance: in other words, the size of the fund overwhelms any superior skills they might have.”

The authors suggested that successful funds, which received increasing levels of inflows, should consider splitting in order to maintain results.

“Since the most likely explanation for the negative relationship between fund size and performance is the negative market impact effect from large funds attempting to trade in size, this suggests that funds should split themselves up when they get to a certain size in order to improve the return to investors.”

Related content: How Big Do Investors Want their Hedge Funds? & Golden Lining in Miserable Month for PIMCO  

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