Transcript Changing the Face of Investment Management

A Growing, Broad, Global Market
Institutional Clients:
 Pension Funds, Endowments & Insurance Cos.
 Central Banks and Social Security Systems
Retail: Private Wealth Management
Investment Managers:
 Hedge Funds and Fund of Funds
 Asset Management Companies
Trillions of dollars in assets – not always effectively managed
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1. Key to Success – Effective Decisions
Annual
Set
Determine
Objectives Benchmark
Daily
Outperform
Benchmark
Monthly
Monthly
Evaluate
Performance
Measure
Risk
 Good management = must make many decisions well
 Must make these decisions in an informed manner
 Process, transparency and governance are critical
 AlphaEngine: Bring state-of-the-art to investor’s desktop
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1. Portfolio =Many Decisions
Portfolio
Asset
Allocation
Equity = 40%
Bonds = 40%
Sector/
Regional
By Market
(Local, US etc.)
By Market
(Local, US, Euro)
Style
Selection
Large Stocks/
Small Stocks
Govt./Agency etc.
Manager
Selection
Cash/
Currency = 20%
Mgr
Mgr
Mgr
Mgr
Mgr
Mgr
A
B
C
D
E
F
Private & Confidential
Bank 1
Bank 2
for
Deposits
for
Deposits
3
AlphaEngine - Features
AlphaEngineTM facilitates optimal portfolio construction:
•Asset allocation:
•Tactical Asset Allocation process at the total fund level
•Style/Sector/Market allocation strategy within an asset class
•Evaluating of rebalancing relative to other alternatives
•Implement risk budgeting framework to improve returns for a given portfolio risk.
•Improve manager allocations/manage cash flows relative to static manager allocations.
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Ensure Decisions Generate Returns
Total Excess = 2%
Total Portfolio
Asset allocation strategy
Equities
Cash
1-mo LIBOR
Bonds
Country allocation strategy
Local Bonds
+
Currency
Excess Return = 0.5%
+
Foreign bonds
Sector allocation strategy
Government
Bonds
Excess Return = 0.5%
Mortgage/
Corporate
Excess Return = 0.5%
+
Manager Excess Return = 0.5%
Internal/External Managers
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Use Attribution to Improve Decisions
Total Excess = 0%
Total Portfolio
Naïve Rebalancing
Equities
Cash
1-mo LIBOR
Bonds
Excess Return =- 0.5%
Let Portfolio Drift
Local Bonds
Excess Return = - 0.5%
Foreign bonds
Sector allocation strategy
Government
Bonds
+
Currency
Too much focus on
manager selection
Mortgage/
Corporate
Excess Return = 0.5%
+
Manager Excess Return = 0.5%
Internal/External Managers
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Rules: Convert Ideas into Good Process
Example:
Investment Idea: Cash vs Bonds: Apparently, the price of gold is a good indicator of whether funds should
be invested in cash or higher duration assets (bonds). Rising gold prices are good for cash relative to bonds.
Rule Criteria:
IF ((Price of Gold Today > Price of Gold a Year Ago))
THEN Allocate more to Cash
ELSEIF ((Price of Gold Today < Price of Gold a Year Ago))
THEN Allocate less to Cash
ELSE
Do Nothing
Performance Statistics:
Excess Annualized Return: 0.61%
Risk: 0.94%
Information Ratio: 0.65
Max Drawdown: -1.24% on 3/31/1999
Success Ratio: 61.1%
Confidence in Skill: 97.95%
Good decisions add returns and reduce risk
*Purely hypothetical example and not an investment recommendation
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Deliver Detailed Reports Through Web
Performance Measures
Benchmark
Strategy
Excess
6.47
9.25
2.78
36.79
55.64
18.85
Risk %
2.28
5.58
3.55
Return / Risk Ratio
2.84
1.66
0.78
Return %
Cum. Return %
Strategy
Excess
70
56.67
Average returns when positive %
1.51
0.86
Average returns when negative %
-1.02
-0.60
Max. consecutive periods of
positive returns
7
7
Max. consecutive periods of
negative returns
4
5
-2.54
-1.99
Success ratio of the rule %
Max. relative loss for a period %
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PortRate – Under Development
Optimize fund manager selection

Customize analysis to clients’ objectives

Evaluates performance of funds/managers on multiple
metrics and combinations

Clients can:
 Rate and select individual funds/managers
 Create fund-of-funds
 Manage dynamic manager allocations (with
AlphaEngine)
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