Sharath Sury's Headlines of 2010
(Recent and Upcoming Events of Sharath M. Sury in Chronological Order)

• January | 2010

• “Analytic Due Diligence Using an Alpha Cost Index,”
  •  by Sharath Sury and Manda Sury;
  • Published to SSRN/Social Sciences Research Network Sharath Sury is Named to Executive Advisory Group of the University of California’s Silicon Valley/School of Management Initiative

• February | 2010

• Sharath Sury has been Featured as One of “Chicago’s Leading Bachelors” at Starlight Foundation’s “Dream Date” Charity Auction in Chicago; Benefitting Hospitalized Children
  
• Professor Sury is Recognized for “Extraordinary Performance” by Santa Clara University’s Leavey School of Business.
  

• March | 2010

• Professor Sury to Speak at the Exclusive Family Office & Private Wealth Management Forum in Providence, RI
• Professor Sury to Speak at Opal’s Emerging Manager's Summit 2010 in Chicago, IL
• “Efficient Portfolio Management: A Guide to Effective Investment Supervision Processes,” 
  
  • by Sharath Sury;
  •  Published to SSRN/Social Sciences Research Network
• Professor Sury to Moderate “Government & Regulatory Panel” at the Real Estate Investors Summit: Dealmakers’ Conference
• The Highly Anticipated Anthology, “Essential Readings in Applied Financial Economics,” 
  • edited by Sharath Sury, 
  • published and distributed by Cognella Publishing.
• Sharath Sury writes the brief, "The Alpha: Revisited & Clarified" to help enthusiasts and students understand the intricate and sometimes controversial subject.

• April | 2010

• Professor Sury to lead advanced lecture (undergraduate and MBA) course in Applied Portfolio Management. 
  
• Professor Sury, Adjunct Professor of Economics at University of California, to Provide Leadership Guidance to New Center for Computational Finance & Risk Management at the University of California, Santa Cruz.

Risk Measurement - A Multi-Dimensional Concept!

By Sharath Sury

For the past 50 years, many financial economists and professional investment managers relied upon the concept of "mean variance optimization (MVO)" to design investment portfolios. The principle was simple: maximize mean return subject to a certain variance (risk); or minimize variance subject to a certain mean return.

While the MVO technique is well-intentioned, it suffers from an incomplete definition of risk. It has long been known that asset classes can be described using various degrees of specificity, sometimes known as "moments of the distribution." For example, the first moment of the return distribution of an asset class is its mean return. The second moment is known as variance. For a normally distributed asset class with well behaved properties, a variety of analytical techniques can be applied and conclusions drawn based upon these two moments alone (mean and variance).

Unfortunately, many asset classes do not behave according to what the normal distribution would suggest. Further, asset classes that exhibit "normality" for one time period may not exhibit it during other time periods. The incorporation of alternative asset classes (e.g., hedge funds, real estate, private equity) increases the likelihood that an overall portfolio will exhibit degrees of non-normality.

As a result, it is often important to consider at least two other "higher order" moments of the return distribution. The third moment is known as "skew" or asymmetry. It reflects the degree to which an asset class may have a higher proportion of negative (or positive) returns. Some hedge fund strategies are built and marketed explicitly on this notion: while they may exhibit low levels of variance (or standard deviation), they concomitantly exhibit high levels of negative skew (or returns which are asymmetrically biased to the downside).

The fourth moment of a return distribution is referred to as "kurtosis," or more colloquially as "fat tails." Kurtosis reflects the degree to which the return distribution may be subject to extreme events. Thus, the "fat tails" refer to the graphic representation of the returns as exhibiting a higher probability of extreme results than the normal distribution would suggest. As an example, higher levels of geopolitical uncertainty can increase the kurtosis of particular asset classes.

Thus, investment managers and asset allocators who rely solely upon the popularly employed MVO techniques may be missing key risk factors that can adversely affect a portfolio and may therefore provide solutions that are incomplete with respect to skew and kurtosis.

New methods for dealing with the shortcomings of MVO include the use of other constraints in the optimization. For example, the so-called "mean-conditional value at risk (MCVaR)" is a methodology which seeks to incorporate skew and kurtosis. CVaR essentially relates to the "area of the return profile" below which an investor is "at risk."

By maximizing mean return subject to an acceptable level of CVaR, an investment manager may be better able to capture the important risks of the portfolio. Recent (and repeated) empirical research has shown that-in hedge fund portfolios alone-the MVO methodology has underestimated the amount of risk (as defined by CVaR) by as much as 50%!

In the past few years, CVaR has been joined by other risk measures, such as "Omega," to help broaden the traditional definition of risk beyond the confines of simple variance or standard deviation. In the end, more complete definitions of risk should lead to more robust portfolio optimization solutions.

Posted by SURYONLINE.NET at 3/9/2010 6:47 PM

The Following List Contains Sharath Sury's Tentative Speaking Engagements for 2010:

• Emerging Manager's Summit 2010
  

  • Sharath Sury to Moderate a Panel Discussion over the "Asset Allocation and Risk" 
    segment

  • May 12-14, 2010 at the Swissôtel Chicago in Chicago, IL

    • The Asset Allocation and Risk segment is scheduled from 9:45am - 10:45am