Asset Management Program Università Bicocca

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Asset Management ProgramAsset Management Program

Università BicoccaUniversità Bicocca May 2007May 2007

2

ProgramsPrograms

Equity InvestmentEquity Investment

Fideuram Investimenti SGRFideuram Investimenti SGR

Investment Process

Asset Allocation

Alternative investment

Multimanager / open architecture

Quantitative Techniques and Risk Management

3

Multimanager


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What is the multimanager approach

3 ways of multimanager:

3. Top down allocation decided by internal manager

The generation of alpha is deputed to external managers (funds of funds)

2. Mixed structure

3. Mandate to an external company to manage a fund / managed account

the top down process and the generation of alpha are totally deputed to an external manager


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Why the multimanager approach

3 main reasons:

3. Range and Quality

through the multimanager is possible to acquire expertise on markets / approaches / styles not covered

2. Diversification

approach and market diversification

3. Economic rationale

trend of demand towards multimanager


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Universe of funds

2 ways to enter the funds universe:

3. Direct agreements

Issues:

long time and costs to negotiate legal and commercial agreement

few fund houses

need of a trading platform

2. Comprehensive Platform (Allfunds Bank)


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Mapping the funds

Differences from an universe of stocks:

No reliable information from data providers (morningstar, s&p) or official classification (assogestioni) about:

market on which the fund invests (no discriminaton from an area and a part of that area)

utilisation of systematic currency hedging

correlation to particular markets (real estate)

different styles

etc.


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Mapping the funds

Solutions:

3. Best way:due diligence on all fundssophisticated quant analysis (multifactorial regression)

Issues:time and resources: many resources and long time to cover all the universemulticollinearity

2. Light due diligence (creation of a DB with key information)single factor regression to validate qualitative data

Attribution to the appropriate benchmark


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Time series

Critical aspect:

Time series are available but not all in line with the market:

3. Time series shifted by one day

easy solution

2. Pricing of the assets intraday

correct the series by adding and subtracting the market performance


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Quantitative screening

Type of fund

2. Equity or fixed income fund

regression with the attributed benchmark

2. Absolute return fund

ability to reach the performance target within volatility and var limits


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Goals:

2. Benchmark driven portfolio with short to mid term horizon, top down approach with tactical asset allocation

Profile of indicators to look for

we need funds with high predictability, close to ETF / index tracker, high Rsqare, consistence of Beta, better with outperformance but we can bear light underperformance

Usually funds with these characteristics have quantitative investment process, low tev, little deviation from benchmark allocation, securities diversification, risk management process is a key


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Goals:

2. Benchmark as a reference for the portfolio, mid to long term horizon, no need to beat the benchmark, but to have a better risk / performance profile (usually private portfolios)


lower Rsquare, no matter the inconsistence of Beta, higher tev, profile of outperformance

Usually funds with these characteristics have bottom up discretional investment process, concentrated portfolios, some deviation from benchmark allocation. They can base the generation of outperformance both on asset allocation, market timing and security selection


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Goals:

3. Portfolio with outperformance target vs benchmark in a mid term horizon, costs to repay (usually funds of funds)


some funds with mid to high Rsquare, consistence of outperformance, mid tev: to reduce drawdown probability and limit the dimension of the underperformance

some funds identified for the second portfolio: to generate excess return vs benchmark


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Goals:

4. Portfolio with an absolute return target


good risk / return profile, low / no correlation with equity or bond market, little drawdown


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Qualitative analysis

Many aspects to investigate:

3. The firm

ownership, organisation, AUM

2. Investment philosophy & process

investment universe: coherence with benchmark, market and style declared

investment processinitial screening, idea generation, valuation techniques: is the process robust, is it coherent with the investment philosophy?changes in the process settle the quant analysis


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Qualitative analysisbuy & sell discipline: trade off flexibility - risk?

positions held for risk purposes: conviction?asset allocation is a key? consequences on

the portfolio construction

3. The manager / management team

single star manager: quick decisions, but what if he lives? team: internal conflicts but continuity

who is responsible for what?

motivation and remunerationare managers motivated?are they evaluated on performances? What is the time period for the evaluation: one calendar year consolidation

of the performance? rolling period


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Qualitative analysis

4. Characteristics of the portfolio

investment style, capitalisation, approach asses coherence with: what declared

past performance

number of securities in the portfolio

utilisation of cash, derivatives, currency hedging:coherence with the approach

targets in terms of performance and tev is there also tev and performance budgeting? is the performance consistent with this?

how do they explain the past performance?

limits relative to the benchmark (beta, countries & sectors):coherence with the approach


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Portfolio construction

Goals:

Equity portfolios: beat the Msci tr net dividend indexAbsolute return portfolios: reach the declared target

How:

Equity portfoliosdiversification in terms of: markets, style, approachUncorrelated alphaRisk control (beta, tev, deviation from benchmark)

Absolute return portfolios:Diversification in terms of: strategies / marketsUncorrelated performancesRisk control (volatility, correlation and beta vs equity and bond

market)


Documents

Asset Management Program Università Bicocca