Investment Industry Research & Consulting
For over 20 years, Empirical Modeling & Analytics, Inc. (doing business as EMA Softech) has provided expert wealth management research, advice and software technology to high-net-worth and institutional advisors. The company was founded in 1987 by Dr. James B. MacBeth Ph.D. Prior to forming the company, Dr. MacBeth was an associate of Dr. Eugene F. Fama Ph.D. at the University of Chicago’s Booth School of Business in the mid-to-late 1970's, where they jointly worked on published financial economic research papers. The firm's initial charter was to provide consultative research and be an analytical production resource for a 200 year-old global custodial bank, which is still a current client. Over the years the firm has branched out to provide similar services to investment advisors, plan sponsors, fiduciaries and institutional banks worldwide.
RESEARCH AND CONSULTING SERVICES
EMA Softech provides returns-based style analysis (risk profiling and attribution) and asset allocation software solutions to large financial institutions, Registered Investment Advisors (RIA firms) and trust departments of large and mid-sized banks. We have developed a suite of financial software tools and applications, along with consulting services, that enable our clients to rigorously analyze risk-adjusted manager performance and test model portfolios.
Mutual Fund Risk Reporting and Profiling
EMA Softech provides mutual fund risk reports to the investment community for research purposes. When analyzing or monitoring an actively managed mutual fund, it is the object of most analysts and consultants to gain as much understanding of the risk/return trade-off within a portfolio as possible. As explained in our white paper: “A Four Factor Performance Attribution Model for Equity Portfolios”, we utilize a proprietary model in the tradition of Fama and French to help determine whether the manager’s stock selection skill (alpha), had a positive or negative impact on the portfolio. This information is used by third-party investment consultants as well as in-house institutional financial analysts alike.
Funding Studies
EMA Softech provides allocation-testing software and training to investment advisors. This allows them to produce a concise and effective report for a foundation’s investment committee, to help determine an appropriate spending rule given a particular level of risk. Oftentimes the funding of a study is the first significant investment-planning step in the management of the foundation’s assets. The report includes a comparison of the current portfolio against a proposed mix, including modeling various spending rules to simulate what the impact of spending more, or less, or taking on more or less risk might be on the fund. The software application also allows for simulating the impact of higher inflation rates to a portfolio over time utilizing a mean-variance optimization and Monte Carlo simulation.
Asset Liability Studies
Investment advisors can utilize EMA Softech resources to provide comprehensive and effective reports for a defined-benefit or pension plan’s investment committee that will help determine an appropriate asset mix to meet all future liabilities. Oftentimes the asset liability study is the cornerstone of the investment policy statement and determining a targeted rate of return. The final report includes a comparison of the current portfolio against alternative asset mixes and strategies. Alternatives include traditional modern portfolio theory and liability-driven investing. The software application also allows for simulating the impact of higher inflation rates and actuarial changes to a portfolio over time. The process also utilizes mean-variance optimization and Monte Carlo simulation to create the reports.
Investment Manager/Mutual Fund Searches
The decision of an investment advisor to recommend replacing an existing investment manager or mutual fund within a client’s total portfolio is a complex process. There are typically a variety of things to consider:
- At what point and on what basis do you replace an existing investment manager or mutual fund?
- How will you select a replacement that mixes well with your remaining investment managers or mutual funds in the portfolio?
- What are the costs associated with the switch?
- How do you properly vet a prospective investment manager or mutual fund and document that proper due diligence steps were taken?
- Who should be involved in the decision making process?
EMA Softech has the analytical, due diligence know-how and software tools to assist the advisor or institution in making tough decisions. We walk each client through the process step-by-step to interpret the data and systematically choose an appropriate investment manager or fund based on quantitative and qualitative parameters specific to the client’s needs. As an independent third-party, EMA Softech adds validity to the institutional decision making process.
Outsourcing manager and fund searches to EMA Softech benefits the client in several ways:
- The advisor or institution can devote more time to more important business tasks.
- Less overhead associated with staff salaries (in-house analysts, advisors)
- The advisor can leverage EMA Softech’s credentials to gain credibility with clients.
- A sophisticated advisor can elevate his/her practice by offering consulting services to larger clients with a greater appetite for information and analytics.
- Collaboration, third party research insight and monitoring tasks that are not cost-prohibitive.