COOPERATION BETWEEN EDHEC-RISK INSTITUTE AND PRINCETON UNIVERSITY

Presentation of the Partner

Princeton University is a vibrant community of scholarship and learning that stands in the nation’s service and the service of humanity. Chartered in 1746, Princeton is the fourth-oldest college in the United States. Princeton is an independent, coeducational, nondenominational institution that provides undergraduate and graduate instruction in the arts and humanities, social sciences, natural sciences, and engineering.

As a world-renowned research university, Princeton seeks to achieve the highest levels of distinction in the discovery and transmission of knowledge and understanding. At the same time, Princeton is distinctive among research universities in its commitment to undergraduate teaching.

Today, more than 1,100 faculty members instruct approximately 5,200 undergraduate students and 2,600 graduate students. The University’s generous financial aid program ensures that talented students from all economic backgrounds can afford a Princeton education.

 

ORFE is the intersection of five core disciplines: financial mathematics, operations research, optimization, probability theory, and statistics. Research in the Department ranges from the mathematical foundations of these fields to the development of state-of-the-art methodology for solving complex problems that arise in important real-world applications in finance, engineering and the sciences. ORFE students obtain a strong quantitative and interdisciplinary training, and acquire the skills to become leaders in academia and industry.

The Bendheim Center for Finance was established in 1998 to encourage interdisciplinary research in finance, primarily from a quantitative or mathematical perspective. The research activities of the center are directed toward the study of financial markets and asset prices, the financial structure of firms, banks and other financial intermediaries, and the linkages between financial economics and other fields, such as engineering, operations research, mathematics, computer science, psychology and public policy.

 

Point of contact:

John M. Mulvey is a Professor in the Operations Research and Financial Engineering Department and a founding member of the Bendheim Center for Finance at Princeton University. His specialty is financial optimization and advanced portfolio theory. For over thirty-five years, he has implemented asset-liability management systems for numerous organizations, including PIMCO, Towers Perrin/Tillinghast, AXA, Siemens, Munich Re-Insurance, and Renaissance Re-Insurance.

His current research addresses regime identification and factor approaches for longterm investors, including family offices, and pension plans, with an emphasis on optimizing performance and protecting investor wealth (and surplus wealth). He has published over 150 articles and edited 5 books. He is currently editing a book “Machine Learning in Finance,” and is a senior consultant for the California Public Employees Retirement System.

 

Presentation of the Partnership

In 2012, EDHEC-Risk Institute signed a strategic partnership agreement with the Department of Operations Research and Financial Engineering (ORFE) at Princeton University for research and outreach initiatives in the area of risk and investment management.

One of the key ambitions of this partnership is to develop innovative academic research in finance that could have a strong influence on the practice of investment management, at a time when the industry is facing a number of key paradigm changes leading to an increased focus on risk management. These developments also question a number of fundamental insights from modern portfolio theory, including for example the risk-return relationship in equity and bond markets from the cross-sectional and time-series perspectives, and the proposed joint research agenda is expected to address some questions that are not only practically relevant, but also on the forefront of outstanding problems in financial economics.

The common ambition of EDHEC-Risk Institute and Princeton ORFE is to develop and manage a research programme related to investment solutions for institutions and individuals, and more precisely with a focus on a comprehensive use of the three forms of risk management (diversification, hedging and insurance) regarded as the true source of added-value in investment management.

These various research directions heavily draw on tools borrowed from various academic fields where strong expertise is present in both institutions, particularly in financial engineering, financial econometrics, mathematical finance and stochastic optimisation. The EDHEC-Risk Institute and Princeton ORFE faculties include some of the leading experts in these fields and their combined expertise is expected to lead to influential developments that would re-enforce the visibility of the two partnering institutions around these domains, in both academia and investment practice.

In terms of outreach activities, the broad ambition of EDHEC-Risk and Princeton ORFE is not only to develop cutting-edge research in investment solutions, but also to make sure that the investment industry will benefit from whatever useful academic insights will be generated through these research efforts.

Over the years, the research partnership has evolved to encompass a number of dimensions including:

  • Joint consulting initiatives

Following a formal RFP process, EDHEC-Risk Institute and Princeton ORFE have been jointly selected to provide assistance to CalPERS in the design, development and implementation of a factor-based approach to asset allocation and asset-liability management (ALM). The project is currently in its second phase, with a focus on smart equity factor indices and capital market assumptions for ALM analysis. Within the partnership itself, the selection of a small number of private research projects contributes to satisfying two key criteria: coherence with the strategic focus of the partnership (investment solutions) and impact of the private research (to compensate for the lack of public output).

  •  Joint educational initiatives

The partnership between EDHEC-Risk and Princeton ORFE includes the willingness to have PhD candidates from ORFE spend one year on the EDHEC-Risk campuses in Europe (Nice and London) or Asia (Singapore), where they would benefit from access to EDHEC-Risk PhD Finance programme, subject to the successful completion of admission requirements.
The joint ambition of EDHEC-Risk and Princeton ORFE is to have exceptionally gifted candidates who could obtain both the Princeton PhD in Operations Research and Financial Engineering and the EDHEC-Risk PhD in Finance; these candidates would benefit from the combined network of both faculties, who will seek to help them secure placement in finance departments at top business schools worldwide.

  •  Joint outreach initiatives

In this context, EDHEC-Risk and Princeton ORFE have set up a bi-annual event, the EDHEC-Princeton “Academia Meets Practice” conference. At the last edition of this conference, speakers from EDHEC-Risk Institute, from Princeton ORFE, and also from the Bendheim Center for Finance at Princeton University, provided selected investment professionals with the latest academic insights related to new frontiers in institutional money management. The format of the conference is meant to facilitate the exchange of views between academicians and practitioners; it involves presentations given by a faculty member of Princeton University from the ORFE department and/or the Bendheim Center for Finance, or EDHEC-Risk Institute, followed by a discussion with the audience.
After launching three successful events, the format will change this year as we will take the opportunity to leverage our partnership with KAIST and Tsinghua University to jointly organise the first event in the so-called “Four-University Rotating FinTech International Conference Series”, with a focus on Wealth Management Systems for Individual Investors. This will take place in Princeton.

  • Joint industrial initiatives

With the support of Merrill Lynch Wealth Management, we will launch early 2018 a series of EDHEC-Princeton goal-based investing indices. These indices represent an incarnation of some of the latest academic thinking in Goal-Based Investing, and are meant to encourage and facilitate the launch of welfare-improving forms of investment solutions. They are expected to provide strong marketing impact in the arena of investment solutions for individuals, especially in the context of retirement investing.