Modern portfolio theory incorporates realistic factors useful for tailor-made solutions but could be improved by understanding client preferences earlier. Regional asset managers may offer innovative solutions from less covered areas. Improving the manager selection process requires understanding that top performers do not outperform benchmarks consistently as they take calculated risks before others. Investment consultants should rethink business models to reduce reliance on asset managers and better serve client needs.

1. Rethinking
Modern Portfolio Theory
criteria or formats that were too rigid In the emerging market space, it is
and did not really help when trying to imperative to have local asset
derive good estimates, therefore we managers. Active managers in this
adjusted the theory to accommodate space are familiar with small and mid-
clear factors, such as instability, sized gaps, the private equity markets
differences in data per market and and the corporate bonds that have
market cycles. The solutions offered are lower ratings. Regional know-how
made more realistic and useful to results in better investments. Not just
clients. that, they might actually offer
innovative solutions (or relatively
How can assets be effectively unknown ones) that add tremendous
allocated in a low-return value to Western investors who never
environment? really looked at them.
Interview with: Erik van Dijk,
Principal, LMG Emerge Investors should be ready for these
environments by preparing specific
policies and guidelines at times when
Top
Modern portfolio theory incorporates all things are still positive. In this way
realistic factors that are useful for when the bad period arrives, investors
clients to have a tailor-made solution will know how to strategically act and
managers
that addresses their needs, says Erik more exotic asset classes and countries
van Dijk, Principal, LMG Emerge. can be investigated. Safeguarding
However, taking client preferences on against these environments beforehand
take risks
board at an earlier stage would help will eliminate panic and ensure that the
investment consultants achieve a categories in which assets can be
better risk/return profile for their efficiently allocated can be easily found.
before
clients, he adds.
What makes a portfolio efficient?
A speaker at the marcus evans
the herd
Investment Consultants Summit An efficient portfolio is one that
2012, in Noordwijk aan Zee, The considers the probability, and can
Netherlands, 3 - 4 September, van Dijk efficiently deal with unexpected events.
provides his insights into how an Such a portfolio offers flexibility, can be
efficient investment portfolio can be adjusted quickly and without high costs
achieved. in order for it to continue to lead to
profitable outcomes.
Why do you think modern portfolio
theory and risk-return optimisation How can the management selection What other advice could you give to
needs to be rethought? process be improved? investment consultants?
During my research with Harry Before asset managers can be selected, The group as a whole should carefully
Markowitz, we realised that what were it is important to understand that rethink its business models to reduce its
said to be constraints were in fact excellent managers who outperform dependency on asset managers. This
clients looking for tailor-made solutions. their benchmarks do exist but just not change will re-enforce independence
By knowing these existing preferences all the time. This is because top and place value on knowing exactly
and taking them on board at an earlier managers take risks by changing what the client wants. Smaller
stage, having them as a starting point, allocations and security selections consultants may have to combine their
a better risk/return profile can be before the herd. Occasional bad periods specialisations in certain asset classes
achieved. surface when ineffectual calculated risks and regions to tailor-make solutions.
were taken and these periods may Reinventing the business model takes
We also encountered the actuality that actually, in the longer run, reflect the time but in the long run it will
risk and return were based on abstract strength of the manager. materialise great advantages.

2. About the Investment Consultants Summit 2012
The Investments Network –
This unique forum will take place at the Grand Hotel Huis ter Duin, Noordwijk aan
marcus evans Summits group
Zee, The Netherlands, 3 - 4 September 2012. Offering much more than any
delivers peer-to-peer information
conference, exhibition or trade show, this exclusive meeting will bring together
on strategic matters, professional
esteemed industry thought leaders and solution providers to a highly focused and
trends and breakthrough
interactive networking event. The Summit includes presentations on optimum
innovations.
institutional portfolio construction, strategic risk management and asset allocation,
global economic stability and reducing balance sheet risk.
www.investmentconsultantseurope.com
Contact
Please note that the Summit is a
Maria Gregoriou, Journalist, marcus evans, Summits Division
closed business event and the
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limited. Email: press@marcusevanscy.com
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To view the web version of this interview, please click here: www.investmentconsultantseurope.com/ErikVanDijk