Presentation for the Association of Provident Fund of Thailand Bangkok, February 26th 2015 THIS DOCUMENT HAS BEEN PREPARED FOR CIRCULATION TO PERSONS REASONABLY BELIEVED TO BE WITHIN ONE OF THE EXEMPTIONS CONTAINED IN THE ACT ON MUTUAL FUNDS (48/1999, AS AMENDED) AND ACT ON INVESTMENT SERVICES (SIJOITUSPALVELULAKI 747/2012, AS AMENDED) IN FINLAND (“PROFESSIONAL INVESTOR EXEMPTION”) OR TO WHOM THIS DOCUMENT MAY OTHERWISE LAWFULLY BE COMMUNICATED TO GIVE PRELIMINARY INFORMATION ABOUT THE INVESTMENT STRATEGIES AND OTHER INFORMATION DESCRIBED HEREIN. IT IS A CONFIDENTIAL COMMUNICATION TO, AND SOLELY FOR THE USE OF, SUCH PERSONS. THIS PRESENTATION IS NOT DIRECTED AT ANY PERSON IN ANY JURISDICTION WHERE (BY REASON OF THAT PERSON’S NATIONALITY, RESIDENCE, CLIENT CLASSIFICATION OR OTHERWISE) AVAILABILITY OF THIS PRESENTATION IS PROHIBITED. IT IS THE RESPONSIBILITY OF EVERY PERSON RECEIVING A COPY OF THIS DOCUMENT TO SATISFY HIMSELF AS TO THE FULL OBSERVANCE OF LAWS OF ANY RELEVANT COUNTRY.
Agenda 1. Estlander & Partners - Company overview and background 2. Regulation & Risk Management 3. Benefits of Managed Futures 4. Our investment strategies 1. Trend following – Freedom 2. Asset Allocation – E&P Dynamic 5. Key People 6. Summary
Estlander & Partners - company AUM Approx. USD 540 million (including notional assets, 01/2015) Strategies Trend following - Freedom Asset Allocation - Dynamic People P ortfolio management team of 9 professionals Team with solid trading experience and award-winning PhDs University cooperation since 1998 attracting top talents Offices Helsinki , main office and client relations Vaasa , operations, trading and portfolio management Munich, client relations
Estlander & Partners – client service Committed effort to educate Thai investors on managed futures and • alternative investments in general since 2010 Senior consultant in Thailand: Gunnar Björhn • Tailored & transparent reporting for clients •
Unique and competitive location Finland • EU member since 1995 AAA-credit rating • Successful universities and top level • competence Best business environment in the world • 2009-2013 (Economist Intelligence Unit, EIU) • Finland is the world’s best place to live in (Newsweek magazine 2010)
Regulation & Risk Management
Regulation & Oversight • Independent non-executive board oversees the activities of the company Estlander & Partners Ltd is registered with and regulated by the • Finnish Financial Supervisory Authority Company level: Quarterly filings of books and records and company • capital requirements. Fund level (specifically for the Finnish AIF funds administered by • E&P): Daily filings of positions and monthly filings of NAV calculations. Registered with the CFTC (Commodity Futures Trading • Commission) and the NFA (National Futures Association) in the USA since 1996 Registered with the SEC in the USA since 2013 •
Risk management • Independent Risk Manager Experienced risk management team • Drawdown control is primary focus • Top rated counterparties • Multiple integrity checks on multiple levels of the operational process • Continuous monitoring of portfolio risk and market events •
Risk Management • Appointed independent Executive Board Risk Manager oversees market risks – Risk Committee trading and portfolio risks – operational risks CEO – Estlander & reports directly to CEO – Partners Ltd Risk Risk Committee oversees • Manager overall company risks – reports directly to Board – Portfolio Sales and Operations IT Management Marketing
Drawdown control rather than volatility control Drawdown risk is managed through control of worst possible outcome Proprietary Achilles risk approach • Achilles risk computation Forward looking analysis of correlation breakdowns and large market moves • Simulation of scenarios where all positions are closed • Worst case instrument scenarios are aggregated to a worst case portfolio loss • Achilles risk management Monitored by Risk Manager • Strategy-specific assessment and alerting •
Achilles Scenario Analysis Forward-looking simulations over 20 days with over 3 x 10 100 scenarios • Broad range of scenarios • – Correlation breakdowns – Trend reversals – Range-bound markets Full model dynamics taken into account • – Signals recalculated over each simulation path – Models stopped out at predefined levels Achilles risk = worst possible outcome over all scenarios • Monitored for the whole portfolio as well as individual models •
Achilles: Directional move in two markets Example of Trend Model response to directional moves
Benefits of Managed Futures
Why Managed Futures? Good diversifier to traditional assets such as equities and bonds • Unlike many other alternative investments, managed futures tend to • perform well during equity crashes. Systematic and efficient risk management • Futures markets are liquid, transparent and regulated • • Institutional investors are increasingly allocating to managed futures to diversify their equity exposure Managed futures are liquid investments •
Positions through exchange traded futures Very low trading costs • Enables an active and efficient risk management • Regulated and transparent markets • • Central clearing, daily settlements: low counterparty risk Good liquidity in a range of markets across equity indices, interest rates, • currencies and commodities Over 20 years of experience from futures trading and global capital • management
Growth of CTA investing $350 Assets invested in $300 CTAs have increased over 50 % since the $250 end of 2008 and 740% Billions of US dollars since the end of 2000. $200 $150 $100 $50 $- 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 CTA AUM Source: BarclayHedge
Global diversification of CTAs Market sector allocations Trading across global exchanges 20 20 % 32 32 % 24 24 % 24 % 24 Commodities Currencies Interest Rates Equities The market sector allocation shown is for the Estlander & Partners Freedom program and is for illustrative purposes only. Source: Estlander & Partners and Bloomberg.
Global diversification of CTAs FIXED INCOME CURRENCIES COMMODITIES BILLS ENERGIES METALS Euro Polish zloty Australian 90 day bank bills US dollar Turkish lira Crude Oil Copper Canada 3 month Bank Accept. Japanese Yen Israeli shekel Brent Crude Oil Aluminium Euribor 3 month British Pound Russian ruble Heating Oil Lead Eurodollar 3 month Swiss Franc Indian rupee RBOB Gasoline NY Zinc Euroswiss 3 month Canadian dollar Mexican peso Natural Gas Nickel US fed funds 1 month Australian dollar South African rand Gas Oil Tin New Zealand 3 month New Zealand dollar Brazilian real Goldman Sachs Index Gold Short Sterling 3 month Norwegian krone Korean won Silver Swedish krona Singapore dollar Platinum Czech koruna Taiwan dollar Palladium Hungarian forint BONDS EQUITIES GRAINS MISC COMDTY Australian 3yr T-Bond Australian 10yr T-Bond Wheat Coffee GBR 10yr T-Bond S&P 500 DJ Euro Stoxx 50 Corn Cocoa LCE Canada 10yr Bond S&P Canada 60 Index South African ALSI Soybeans Cocoa German 2yr T-Bond FTSE Korean KOSPI Index Soybean Meal Sugar German 5yr T-Bond DAX MSCI Taiwan Soybean Oil Cotton German 10yr T-Bond CAC 40 US S&P 400 MidCap Rapeseed (Canola) Crude Palm Oil German 30yr T-Bond FTSE MIB Index European Stoxx 600 Banks White Maize Live Stock Swiss 10yr Gvt. Bond IBEX 35 Index Hong Kong H-Shares Shares Feeder Cattle US 2yr T-Bond Australian S&P 200 Malaysian KLI Lean Hogs US 5yr T-Bond Nikkei 225 Index Swedish OMX Stockholm 30 US 10yr T-Bond Hong Kong Hang Seng Indian S&P CNX Nifty US 30yr T-Bond Nasdaq 100 Index MSCI Singapore Japan 10yr T-Bond Russell 2000 Index Korea 3yr T-Bond
Benefits of CTAs for Thai investors Portfolio is increasing the allocation to CTAs 25 % CTAs** 50 % CTAs** 0 % CTAs** 75 % stocks 50 % stocks 100 % stocks and bonds* and bonds* and bonds 10% 0% 8% Maximum historical drawdown -25% Expected Return 6% -50% 4% -75% 2% 0% -100% 15% 17% 19% 21% 23% 25% Max historical drawdown Expected Return Past performance is not necessarily indicative of future results. Period: October 1991 – January 2015. *Stocks and bonds corresponds to a monthly rebalanced portfolio Index of 60% Stock Exchange of Thailand Total Return Index (THSETRI Index) and 40% ThaiBMA Total Government Bond Index (TBG5TOTR Index). Portfolio alterations: Oct 1991 – Jan 1999: 100% Equities (No bond index data available). Oct 1991 – Dec 2001: Stock Exchange of Thailand SET Index (SET Index) used (no total return index). **CTA corresponds to the Estlander & Partners Freedom Composite. Source: Estlander & Partners, Bloomberg and the Stock Exchange of Thailand (www.set.or.th).
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