Case study of a comprehensive risk analysis for an asset manager
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The risk and performance report for ABC Financial, prepared by Gateway Partners, highlights comprehensive risk management services aimed at market, credit, and liquidity risks across portfolios. Gateway Partners emphasizes the importance of transparent risk reporting and historical performance analysis to enhance client retention and attract institutional investors. The presentation advocates for a collaborative relationship to optimize risk-return profiles and improve operational efficiencies.
Case study of a comprehensive risk analysis for an asset manager
- 1. RISK AND PERFORMANCE REPORT Prepared for: Prepared by: 123 Main Street Anytown, USA
- 6. 100.00 100.00 38.12 52.14 38.12 52.14 3.73 -17.75 -14.02 5.26 10.59 -3.73 14.64 0.13 2.76 1.83 -1.20 0.63 0.00 3.46 27.82 0.00 1.08 0.91 0.00 0.91 18.25 10.27 36.05 55.12 6.87 5.68 0.34 -3.42 -3.09 21.38 12.84 43.69 64.50 9.42 7.83 0.82 -4.06 -3.23 10.94 10.57 19.85 47.10 2.47 5.27 0.01 -3.31 -3.30 6.95 12.91 35.16 90.73 2.41 9.88 -1.90 -3.53 -5.43 21.65 15.02 50.88 53.39 10.35 8.01 0.23 -0.66 -0.43 15.57 18.95 46.15 56.03 6.47 9.83 0.12 -1.57 -1.46 0.00 2.51 16.71 0.00 0.60 0.91 0.00 0.91 0.00 2.88 37.37 0.00 1.18 0.47 0.00 0.47 Financials Information Technology Telecommunication Services Utilities Materials Industrials Consumer Discretionary Consumer Staples Health Care Energy TOTAL SECTOR W eight M ean W eight M ean - Benchmark Return (US D) Return - (US D) Benchmark Contribution (US D) Contribution - (US D) Benchmark E ffect M arket Allocation E ffect S election (Incl. Interaction) E ffects T otal Attribution (US D) -35.00 -30.00 -25.00 -20.00 -15.00 -10.00 -5.00 0.00 5.00 Sector Level Attribution and Performance Effect Market Allocation Effect Selection (Incl. Interaction) Effects Total Attribution (USD)
- 9. (16.00) (14.00) (12.00) (10.00) (8.00) (6.00) (4.00) (2.00) 0.00 Stock Picking Effect Stock Addition Effect Overweight Stock Effect Underweight Stock Effect Stock Exclusion Effect Decomposition of Stock Picking Effect
- 10. % V aR 4.07 1.81 Risk Parameter (279,352) 0.10 940 Market Value VaR Expected Shortfall Expected Volatility Potential Gain Expected Upside Diversification Grade Maximum Stress Scenario Loss Equity Delta 1.89 17,811 VaR HEAT MAP % USD 100 939,947 2.18 20,482 18,660 37.53 0.70 6,580 1.78 16,695 Expected Shortfall Negative Returns Positive Returns Expected Upside 1.99 29.72
- 12. % V aR 0.65 0.18 IR Delta Spread Delta IR Gamma Risk Parameter VaR HEAT MAP % 9.36 Potential Gain Expected Upside Diversification Grade Market Value VaR Expected Shortfall Expected Volatility Maximum Stress Scenario Loss EXPECTED DISTRIBUTION Expected Shortfall Negative Returns 100 0.31 0.34 0.11 0.26 583,850 1,786 1,960 636 Positive Returns Expected Upside Spread Gamma USD 1,508 1,7720.30 6.79 5.67 (54,648) (147.25) 5.67 (147.25)
- 15. % V aR 1.89 0.31 Expected Shortfall Negative Returns Positive Returns Expected Upside Expected Upside 1.22 Maximum Stress Loss 18.32 Fixed Income Spread Delta 1 BP 18,565 Diversification Grade 43.00 Expected Volatility 0.43 6,524 Potential Gain 1.08 16,477 VaR 1.15 17,509 Expected Shortfall 1.36 20,833 VaR HEAT MAP % USD Market Value 100 1,527,635 Risk Parameters (147) (279,863) Equity Delta 0.10 940 Fixed Income Delta 1 BP (147)
- 20. Thank you for taking the time to meet with Gateway Partners today. We appreciate the opportunity to present our findings regarding the risk and performance of the holdings at ABC Financial. The presentation today exhibits how thorough Gateway Partners is in its approach to risk management. While we believe that the information presented to you today is vitally important to risk management procedures at ABC Financial, equally important to your operations is the implementation of several practices in conjunction with these procedures. Gateway Partners believes that an ongoing, consultative relationship with ABC Financial would produce numerous benefits for your firm:
- 21. Complete coverage of market risk, credit risk and liquidity risk for all of ABC’s portfolios. Carry out complete risk analysis and risk impact on portfolios. Complete performance and attribution analysis at top and detailed levels. Implement all stress analyses relevant to portfolio managers and Chief Investment Officer. Provide historical performance and attribution of any new securities prior to adding to portfolio. Complete analysis of risk and performance on portfolio for potential securities additions. Risk return optimization services of the portfolio.
- 22. Provide complete risk analysis of any structured asset classes in the portfolio should management decide to invest in these products. Provide services to send customized risk reports to clients for better transparency. Provide monitoring of any limits that management may currently have in place or may want to put in place. Provide help in setting up risk limit structures in accordance with the guidelines of management. Provide support and help in implementing any regulatory reporting on the portfolio. Establish a system needed to provide transparency of regulatory issues to both regulators and upper management.
- 23. In addition to the benefits that these services would provide to ABC Financial, Gateway Partners believes that ABC would realize numerous other gains: With the economic events of 2008-2009 still fresh in the minds of investors, there is no such thing as “too much” information. Investors want the ability to identify and, more importantly, quantify the risk in their investments. Providing investors with reports that include independently verified risk measures from Gateway Partners can lead to a better understanding for customers of the inherent risks in their portfolios. While having a greater breadth of information regarding the risks in a portfolio is no guarantee that customers will not depart in volatile economic times, it provides a tool that can be utilized to ensure that they understand the inherent risks in their portfolio in any economic condition. This can lead to a greater retention of assets under management, minimizing the “snowball effect” that often occurs when market conditions turn volatile.
- 24. Gateway Partners knows that ABC Financial wants to grow its assets under management. An attractive market for any financial firm is the institutional investor. An institutional investor could have funds it is willing to invest ranging from $1 million to $1 billion or more. These institutional investors tend to be more sophisticated than retail investors, and, thus, are more demanding in terms of the information and oversight they require to invest their funds. Gateway Partners provides this independent oversight, making its clients much more attractive to sophisticated institutional investors.
- 25. Gateway Partners does not view its clients simply as customers. We view clients as partners, working together to enable them to achieve their goals. We are not interested in merely making a sale. Rather, Gateway Partners makes certain that we provide our clients with value that far outweighs the cost. Having worked at the managing director level and above at organizations ranging from medium-sized trading firms to large investment banks, the partners at Gateway have vast experience that spans far beyond the front office. With each partner in charge of multi-billion dollar portfolios, Gateway Partners also brings expertise in middle and back office operations. To that end, we have established relationships with experts in operational, organizational, and tax risk, further enabling our clients to realize immediate returns and savings on their investments and operations. No matter your decision on the material presented today, we look forward to establishing an ongoing, collaborative relationship with ABC Financial. At Gateway Partners, we take pride in helping our clients reach their goals and the results we can provide when they make their risk our risk.