Mesirow Financial Investment Strategies Unveils New target maturity portfolio Methodology

CHICAGO, October 5, 2007 – Mesirow Financial Investment Strategies today unveiled its new target maturity methodology, which focuses on both longevity risk and asset allocation. The white paper, "On the Optimal Design of Target Maturity Portfolios," authored by Janis Zvingelis, Ph.D., asserts that the main risk facing long-term investors is not the short-term variation in asset returns but rather longevity risk, especially in light of increasing life expectancies. The research supporting this new methodology demonstrates that Mesirow Financial target maturity portfolios maximize cumulative wealth and minimize the probability of depleting all of a portfolio's assets during one's retirement under a wide range of investment behavior assumptions.

"We believe that most target maturity offerings currently on the market are under-serving their investors by failing to address longevity risk," says Michael Annin, CFA, managing director of Mesirow Financial Investment Strategies. "The fact is that most investors will outlive their retirement savings given the current savings rates and the design of current target maturity products." He added that "our product should better serve investors as it addresses both longevity risk and asset allocation."

The usual approach to constructing an equity "glide-path" – the asset allocation backbone of the portfolio – can be somewhat arbitrary and rarely addresses the longevity risk issue. In contrast, the Mesirow Financial methodology has a solid basis driven by the concept of time-varying inputs (expected returns, standard deviations, and correlations). Time-varying risk of equity, one of the main drivers of the simulation results, is a consequence of "time diversification" – a phenomenon whereby the risk of investing in equity decreases dramatically with the investment horizon, while the risk of cash increases considerably with the investment horizon. The use of time-varying inputs results in a generous allocation to equity in the portfolios that drive the performance results. The implied standard deviations and the simulation results demonstrate that for long horizon investors the increased equity allocations do not lead to excessive portfolio risk.

Consequently, the set of optimal asset allocations derived are more relevant for each investment horizon.

The study also showed that even slight changes in investors' saving and income withdrawal behavior can have dramatic impact on their cumulative wealth outcomes.

Mesirow Financial is a diversified financial services firm headquartered in Chicago. Founded in 1937, we are an independent, employee-owned firm with offices across the country and in Europe. With expertise in Investment Management, Investment Services, Insurance Services, Investment Banking, Consulting and Real Estate, Mesirow Financial has strived to consistently meet the financial needs of institutions, public sector entities, corporations and individuals. This year marks Mesirow Financial's 70th anniversary. For more information about Mesirow Financial, visit our Web site at www.mesirowfinancial.com.

For more information, contact: Arla Lerman, Mesirow Financial, 312-595-6483.

 

The Mesirow Financial name and logo are registered service marks of Mesirow Financial Holdings, Inc., © 2007, Mesirow Financial Holdings, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. Any opinions expressed are subject to change without notice. It should not be assumed that any recommendations incorporated herein will be profitable or will equal past performance. Nothing contained herein constitutes an offer to sell or a solicitation of an offer to buy an interest in any Mesirow Financial investment vehicle(s).

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