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 invade rates in many developed countries. This aberrant confederacy has created many new challenges for institutional investors, but two digest out for their high degree of intricacy and complexity: the face for yield, and the need to better manageâ€"and account forâ€"fat-tail events.
YogiThambiah Managing Director, Head of enthronement Strategy Americas CIO Office, Credit Suisse Asset Management

We have written 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 consider substitute(a) techniquesâ€"such as increasing exposure to real assets, re-designing move of their fixed income portfolio and modifying risk frameworksâ€"that can potentially mitigate the detrimental impacts of the new normal on their portfolios.



In this paper, we extend our intervention 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 take 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 increasingly important, as conventional measures of risk based on mean-variance optimization have failed to to the full characterize return behavior. Then, we propose alternative investment approaches that we believe can minimize risk from fat tails, and are credibly 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: Orderessay



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