Euromoney Audit Training

Course overview

Portfolio performance measurement is the quality control element of the investment decision process. It provides the necessary information to enable asset managers and clients to assess exactly how their money has been invested and the results of the process. Performance measurement is a core part of the decision process providing essential information to several key stakeholders.

Performance return attribution is defined as quantifying the excess returns of the active decisions of the investment management process. In recent years the developments in performance measurement, standards, risk and attribution (particularly Fixed Income Attribution) have accelerated considerably. This course is designed to bring all analysts, investors, risk managers and other stakeholders up to date with current developments.

Summary of course content

• Understand the concepts of performance measurement
• Learn the different ways to derive returns (and why the results can vary)
• Understand how cashflows affect returns
• Analyse the principles of benchmarking
• Ascertain why risk measurement and management are important and what the measures mean
• Discern the role of attribution, the challenges in getting it right, and how it should be used
• Understand the differences and difficulties of fixed income attribution
• Learn the status and application of the different international performance measurement standards

Course level

You should have a basic knowledge of Excel and are likely to have a basic working knowledge of the asset management industry and the main asset classes.

Course documentation

You will receive comprehensive course notes as well as copies of the Excel spreadsheet exercises for use after the course.

Computer Based Excercises

All delegates are required to bring their laptops to facilitate in-class studies and exercises.

Who should attend this training course?

• Pension fund trustees
• Portfolio managers
• Senior management
• Performance measurers
• Risk controllers
• Compliance staff
• Sales and marketing staff and operations staff

 Supporting publication

   

Day 1

Introduction

• What is performance measurement?
• The performance measurement process
• Basic calculations
• Currency effect
• Time weighted or money weighted?

Practical exercise: return calculations for an emerging markets portfolio

Benchmarks

• Attributes of good benchmarks
• Peer groups, indexes or random portfolios
• Index calculations
  
  Practical exercise: customised benchmark calculations
  
• Excess returns
• Geometric or arithmetic
• Performance fees

Basic attribution

• Attribution as a management tool
• The Brinson Models
• Geometric attribution
  
  Practical exercise: be a portfolio manager for a year: attribution exercise

Day 2

Performance standards

• Background
• Fundamentals of compliance
• Why do it?
• Verification
• Future governance
• Guidance statements
  
  Practical exercise:
  – Definition of firm
  – Definition of discretion
  – Composite allocation

Measuring portfolio risk

• Risk types in asset management
• Risk control
• Ex-post, ex-ante risk
• Absolute, relative and regression risk measures
• Bessel’s correction
• Sharpe ratio
• Information ratio
• M2
• Regression statistics
• Jensen’s alpha
• Beta
• Covariance
• Correlation
• R2
• Fama decomposition
  
  Practical exercise: portfolio evaluation

Risk-adjusted performance measurement for hedge funds

• Skewness and kurtosis
• Bera-Jacque test
• Upper and lower partial moments
• Sortino ratio
• Upside potential ratio
• Omega
• Prospect ratio
• Variability skewness

Practical exercise: detailed risk calculations from raw data

• Drawdown
• Sterling ratio
• Calmar ratio
• Burke ratio
• Sterling-Calmar ratio
• Pain index
• Ulcer index
• Pain ratio
• Martin ratio
• Value at Risk
• Return to VaR
• Expected shortfall
• Adjusted sharpe ratio
• Modified sharpe ratio

          Practical exercise: risk-adjusted performance measurement for hedge funds

Day 3

Further attribution

Multi-currency attribution

• Ankrim & Hensel
• Karnosky & Singer
• Bacon

        Practical exercise: multi-currency geometric attribution exercise

• Attribution issues
• The evolution of attribution methodologies
• Security level attribution
• Multi-level attribution
• Smoothing algorithms
• Carino
• Menchero
• GRAP
• Frongello

Fixed income attribution

• Campisi framework
• Weighted duration (Van Breukelen) attribution
• Yield curve decomposition
  
  Practical exercise: weighted duration attribution

Derivatives

Attribution for derivative instruments and alternative strategies

• Futures
• Options
• Swaps
• Market neutral, 130/30 funds
• Leverage

Course summary and review

• Carl Bacon

  Carl Bacon is Chairman of the UK-based firm specialising in middle office reporting software for the asset management industry.
  
  Carl was previously Director of Risk Control and Performance at Foreign & Colonial Management Ltd, Vice President Head of Performance (Europe) for JP Morgan Investment Management Inc., and Head of Performance for Royal Insurance Asset Management.
  
  Carl hold a B.Sc. Hons. in Mathematics from Manchester University and is an executive committee member of Investment-Performance.com.
  
  A founder member of both the Investment Performance Council and GIPS, Carl is ex-chair the IPC Interpretations & IPC Verification Sub-Committees, and is a member of the Advisory Board of the Journal of Performance Measurement.
  
  Carl is also the author of “Practical Portfolio Performance Measurement & Attribution” part of the Wiley Finance Series.

Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.

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