Title: About the risks of alternative risk premia
Authors: Guillaume Monarcha - Orion Financial Partners (France) [presenting]
Abstract: In the continuity of factor-based investing, alternative risk premia (ARP) provide investors a liquid and transparent alternative to strategies that were previously accessible only through hedge fund investments. On the model of fund of hedge funds, several asset managers have recently set up risk premia funds in order to provide investors their ability to select and allocate between the various ARP products developed by investment banks. We put a light on the fact that if ARPs are more accessible than hedge funds, their risk structures and return drivers remain complex. Thus, their low levels of correlation with traditional asset classes are an obvious source of diversification, but at the price of specific risks which need to be assessed. Using a database of investable ARPs developped by investment banks, we first perform a clustering analysis in order to identify the main ARP styles. Secondly, we test their sensitivity to traditional risk factors, through static and dynamic factor models. Finally, we test their sensitivity to various environmental factors (macroeconomic cycles, risk aversion ...), both in terms of performance and risk.