Daniel Gulko, CFA, CIPM - Financial Technologies Forum · PDF fileWiFiNetwork: WiFi Network: Convene Conference Centers Convene Conference Centers Password: meetings Daniel Gulko,

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Daniel Gulko, CFA, CIPM

HSBC Global Asset Management

John Matsikas, CFA

Voya Investment Management

Shankar Venkatraman, CFA, Citi

March 10, 2016

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The views expressed in this material are the views of presenters, and are subject to change. All materials have been obtained from sources believed to be reliable. There is no

representation or warranty as to the accuracy of the information and presenters’ employers shall have no liability for decisions based on such information

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� Explains the sources of over/under-performance vs benchmark.

� Confirms that results are in line with stated investment process.

� Helps to find unintended shifts in portfolio structure.

� Offers the view on timing of investment decisions and portfolio positioning.

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� Asset/Investment Managers (portfolio managers, analysts, management)

� Investors / Asset Owners / Asset Sponsors (Pension funds, Hedge funds, Insurers, Corporate Treasurers, Endowments, Sovereign funds, Wealth Managers, etc)

� Consultants

� Sales/Marketing

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� Plan Sponsor/Asset Owner� Balanced Portfolio (by Asset Class/Style/Manager)� Target-date fund

� Investment Manager� Balanced/Multi-managed Portfolio (by Asset Class)� Balanced/Multi-managed Portfolio with Derivatives� Factor-based attribution� Long/Short Portfolio

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� What needs to be considered?� General approach� Practical challenges� System solutions� Explanation and disclosures

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Source: MorningStar

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3/15/2016 7WiFiWiFiWiFiWiFi Network: Network: Network: Network: Convene Conference Centers Convene Conference Centers Convene Conference Centers Convene Conference Centers Password: Password: Password: Password: meetingsmeetingsmeetingsmeetings Source: S. Campisi, The Journal of Perf. Measurement 7


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Plan Sponsor/Asset Owner

Port Port Bench Bench

Weight Return Weight Return

Large Growth 12.00% 5.04% 13.00% 4.32%

Large Value 13.00% 4.05% 13.00% 4.43%

Mid Growth 6.00% 6.90% 5.00% 7.25%

Mid Value 5.00% 5.35% 5.00% 6.09%

Small Growth 3.00% 5.94% 2.00% 5.14%

Small Value 3.00% 3.16% 2.00% 3.62%

Foreign Developed 16.50% 6.72% 15.00% 5.40%

Emerging Equity 7.50% 8.00% 5.00% 9.82%

Total Equity 66.00% 5.75% 60.00% 5.47%

Investment Grade Bond 27.00% 0.31% 35.00% -0.20%

High Yield Bond 5.00% 2.79% 5.00% 4.17%

Total Fixed 32.00% 0.70% 40.00% 0.35%

Cash 0.28% 0.08%

Cash 2.00% 0.28% 0.00% 0.08%

Total 100.00% 4.02% 100.00% 3.42%

Balanced/Multi-managed Portfolio

(by Asset Class)



Asset Class Asset Class Asset Class Portfolio Portfolio Portfolio Portfolio

Port Port Port Port Bench Bench Bench Bench Style Manager Asset Style Manager

Weight Re-weighted Return Contribution Weight Re-weighted Return Contribution Allocation Selection Total Allocation Allocation Selection Total

Large Growth 12.00% 18.18% 5.04% 0.92% 13.00% 21.67% 4.32% 0.94% 0.04% 0.13% 0.17% 0.02% 0.03% 0.09% 0.14%

Large Value 13.00% 19.70% 4.05% 0.80% 13.00% 21.67% 4.43% 0.96% 0.02% -0.07% -0.05% 0.02% 0.01% -0.05% -0.01%

Mid Growth 6.00% 9.09% 6.90% 0.63% 5.00% 8.33% 7.25% 0.60% 0.01% -0.03% -0.02% 0.01% 0.01% -0.02% 0.00%

Mid Value 5.00% 7.58% 5.35% 0.41% 5.00% 8.33% 6.09% 0.51% 0.00% -0.06% -0.06% 0.01% 0.00% -0.04% -0.03%

Small Growth 3.00% 4.55% 5.94% 0.27% 2.00% 3.33% 5.14% 0.17% 0.00% 0.04% 0.03% 0.01% 0.00% 0.02% 0.03%

Small Value 3.00% 4.55% 3.16% 0.14% 2.00% 3.33% 3.62% 0.12% -0.02% -0.02% -0.04% 0.01% -0.01% -0.01% -0.02%

Foreign Developed 16.50% 25.00% 6.72% 1.68% 15.00% 25.00% 5.40% 1.35% 0.00% 0.33% 0.33% 0.03% 0.00% 0.22% 0.25%

Emerging Equity 7.50% 11.36% 8.00% 0.91% 5.00% 8.33% 9.82% 0.82% 0.13% -0.21% -0.07% 0.01% 0.09% -0.14% -0.04%

Total 0.17% 0.11% 0.28% 0.12% 0.12% 0.07% 0.31%

Total Equity 66.00% 5.75% 60.00% 5.47% 0.12% 0.19% 0.31% 0.12% 0.12% 0.07% 0.31%

High Quality Bond 27.00% 84.38% 0.31% 0.26% 35.00% 87.50% -0.20% -0.18% 0.02% 0.43% 0.45% 0.21% 0.01% 0.14% 0.35%

High Yield Bond 5.00% 15.63% 2.79% 0.44% 5.00% 12.50% 4.17% 0.52% 0.12% -0.22% -0.10% 0.04% 0.04% -0.07% 0.01%

Total 0.14% 0.21% 0.35% 0.25% 0.04% 0.07% 0.36%

Total Fixed 32.00% 0.70% 40.00% 0.35% 0.25% 0.11% 0.36% 0.25% 0.04% 0.07% 0.36%

Cash 100.00% 0.28% 100.00% 0.08% 0.00% 0.20% 0.20% -0.07% 0.00% 0.00% -0.06%

Cash 2.00% 0.28% 0.00% 0.08% -0.07% 0.00% -0.06% -0.07% 0.00% 0.00% -0.06%

Total 100.00% 4.02% 100.00% 3.42% 0.30% 0.30% 0.60% 0.30% 0.16% 0.14% 0.60%

Proposed solution for Balanced/Multi-managed Portfolio (by Asset Class)

(Campisi's method)





Portfolio Portfolio Benchmark Benchmark


Global Equity 74.00% -1.39% 70.77% -0.69% MSCI ACWI (Net)

Vanguard 500 Index 27.55% -0.14%

PowerShares FTSE RAFI US 1000 13.18% 0.29%

Vanguard FTSE ACWI ex-US 20.71% -2.47%

PowerShares RAFI Dev ex-US 5.90% -3.20%

IShares Currency Hedged MSCI EAFE Fund 6.66% -4.97%

US High Yield 11.79% 1.20% 10.00% 0.84% BofA Merrill Lynch BB-B US High Yield

High Yield Bond Fund 11.79% 1.20%

EM Debt Local Currency 2.97% 1.10% 5.00% 1.44% JPM GBI EM Global Div

Emerging Markets Local Debt Fund 2.97% 1.10%

EM Debt Hard Currency 4.99% 1.91% 5.00% 1.70% BofA ML USD Emerg Markets Sovereign Plus

Emerging Markets Debt Fund 4.99% 1.91%

Global Property 4.93% -0.29% 5.00% 0.43% FTSE EPRA/NAREIT Dev (Net)

SPDR DJ Global Real Estate ETF 4.93% -0.29%

Liquidity 1.33% 0.03% 1.00% 0.03% BofA Merrill Lynch US 3-Month T-Bill

Inv Money Market Fund 1.33% 0.03%

Total Return 100.00% -0.78% 100.00% -0.20%

Target-date fund



Investment Manager

Port Port Bench Bench


Total Equity 66.00% 5.75% 60.00% 5.47%

Investment Grade Bond 27.00% 0.31% 35.00% -0.20%

High Yield Bond 5.00% 2.79% 5.00% 4.17%

Total Fixed 32.00% 0.70% 40.00% 0.35%

Cash 2.00% 0.28% 0.00% 0.00%

Cash 2.00% 0.28% 0.00% 0.00%

Total 100.00% 4.02% 100.00% 3.42%

Balanced Balanced/Multi-managed Portfolio

(by Asset Class)



Investment Manager

Sleeve

Portfolio

Weights

Portfolio

return

Benchmark

weight

Benchmark

return

Developed Markets 31.5% 2.0% 35% 1.9%

Investment Grade 27.8% -1.5% 25% -0.7%

High Yield 33.9% 0.7% 40% 0.6%

Cash 7.0% 0.0% 0% 0.0%

Duration Overlay -0.2% 40.0% 0% 0.0% weight at Marked-to-Market basis

Total 100.0% 0.5% 100.0% 0.7%

Duration Overlay sleeve

- USD Interest Rate Swaps with notional exposure=25% of portfolio

- USD Interest Rate futures with notional exposure=-5% of portfolio

Balanced/Multi-managed Portfolio

with Derivatives



Investment Manager

Sleeve

Portfolio

Weights

Portfolio

return

Benchmark

weight

Benchmark

return

Long Large Cap 30% 2.0%

Short Large Cap -5% -1.5%

Long Mid Cap 50% 0.7%

Short Mid Cap -8% 1.5%

Long Small Cap 43% 2.8%

Short Small Cap -13% -0.6%

Cash 3% 0.0% 0% 0.0%

Total 100% 2.5% 100% 2.3%

Long/Short Portfolio

33%

40%

27%

3.0%

0.6%

1.9%



� Define the user base / stakeholders

� Define the objectives (conduct interviews with stakeholders to understand investment process and expectations for end results).

� Evaluate what models your existing software can offer

� Identify the suitability of these models to your objectives

� Consider alternative solutions - in-house development, another vendor software

� Identify data inputs and gaps (data sources for positions, transactions and cash; security characteristics and risk analytics, index data, etc)



� How precise attribution results should be vs contribution/portfolio relative return? Level of residual and how to display it.

� Define frequency, breakdowns/granularity, precision, availability and distribution method of attribution reports

� How attribution model fits into risk model?

� Is system robust enough to handle the volume? Define workflow and identify potential technical bottlenecks

� Create templates for user reports

� What to do with history (if any) in legacy system – whether to migrate it into new system or just archive it?

� Prototype the process

� Share the results of prototype with stakeholders.

� Get signoff for implementation



Discussion topics:

� How to display periodic changes in strategic asset allocation in multi-period reporting?

� How to treat derivatives offsets?

� For multi-period reporting – how frequently to calculate attribution effects

Documents

Daniel Gulko, CFA, CIPM - Financial Technologies Forum · PDF fileWiFiNetwork: WiFi Network: Convene Conference Centers Convene Conference Centers Password: meetings Daniel Gulko,