New Normal Investing

Asset Management NewNormalInvesting: Isthe(Fat)TailWaggingYourPortfolio? April202 WHITEPAPER ExecutiveSummary The 2008 crisis has undoubtedly reshaped the global fiscal landscape, compelling investors to adapt to a unexampled normal1 environment, characterized by anemic economic growth, rising unemployment and low storm rates in many developed countries. This aberrant coalition has created many virgin challenges for institutional investors, but two hurt out for their high degree of intricacy and complexity: the establishment for yield, and the need to better manageand account forfat-tail events. YogiThambiah Managing Director, Head of investiture Strategy Americas CIO Office, Credit Suisse Asset Management We have pen extensively about these issues in previous papers,2 and have stressed that, in our view, there is no one-size-fits-all solution to these problems. Instead, we intrust that investors should forecast substitute(a) techniquessuch as increasing exposure to real assets, re-designing send away of their fixed income portfolio and modifying risk frameworksthat can potentially mitigate the poisonous impacts of the new normal on their portfolios.

In this paper, we extend our treatment of how investors can modify their risk framework to adjust for the new normal by providing a deeper dive into fat-tail risk. First, we define what we watch are key drivers of the new-normal environment, and assess the market impact on different asset classes. Then, we discuss how incorporating higher moments3 (i.e., skew and kurtosis) of a return distribution has become incr easingly important, as formulaic measures ! of risk based on mean-variance optimization have failed to to the skillful characterize return behavior. Then, we propose alternative investment approaches that we regard can minimize risk from fat tails, and are likely to be more effective in todays environment, including: ? ? ? The selection of strategies that, when blended with traditional beta,...If you want to get a full essay, order it on our website: OrderCustomPaper.com

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