Euromoney Audit Training

Through class lectures, interactive discussion, practical exercises and team presentations, you will be able to:

• Understand the concepts of performance measurement
• Learn the different ways to derive returns (and why the results can vary)
• Comprehend how cashflows affect the 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

Who should attend

The course will be of value to professionals in the following areas:

• Pension fund trustees
• Portfolio managers
• Senior management
• Performance measurers
• Risk controllers
• Compliance staff
• Sales and marketing staff
• Operations staff
• All wanting a good understanding of performance measurement, risk and attribution.

You will be able to:

• Calculate performance returns
• Know the difference between money and timeweighted returns
• Understand the impact of large cashflows on performance returns
• Calculate customised benchmarks
• Know the attributes of a good benchmark
• Understand the basics of performance attribution
• Interpret an attribution report
• Calculate basic risk-adjusted returns
• Identify risk types in asset management
• Use risk measures to evaluate portfolios
• Understand the benefits of GIPS® (Global Investment Performance Standards)
• Understand the benefits and purpose of verification

Course level

Participants will be required to have a basic knowledge of how to use Excel spreadsheets. Delegates are likely to have a basic working knowledge of the asset management industry and the main asset classes.

Participants are requested to bring their (fully-charged) laptops with Excel loaded. Attendees will be asked to work in teams of two or three on Excel-based practical exercises.

 Course background

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 -not external to it - 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.

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 Model
• Geometric attribution

Practical exercise: Be a portfolio manager for a year attribution exercise

Day 2

Performance standards

• Background
• Detail
• Why do it?
• Verification
• Future Governance

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
• Sharpe ratio
• Information ratio
• M2
• Regression statistics
• Jensen’s alpha
• Beta
• Covariance
• Correlation
• R2
• Fama decomposition
• GH1 and GH2

Practical exercise: Portfolio evaluation

Risk-adjusted performance measurement for hedge funds

• Skewness and Kurtosis
• Bera- Jacque Test
• Downside risk
• Sortino ratio
• Upside potential ratio
• VaR
• Omega

Practical exercise: detailed risk calculations from raw data

• Adjusted Sharpe ratio
• Modified Sharpe ratio
• Prospect ratio
• Drawdown
• Sterling ratio
• Calmar ratio
• Burke ratio
• Sterling-Calmar ratio
• Pain index
• Ulcer index
• Pain ratio
• Marin ratio

Practical exercise: Risk-adjusted performance measurement for hedge funds

• Omega Excess Return
• Hurst Index
• Effective risk control actions
• Risk infrastructure
  

Day 3

Further attribution

• Multi-currency attribution
• Ankrim and Hensel
• Karnosky and 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

Practical exercise: Team discussion which is the best method using previous exercise data

Fixed Income attribution

• Campesi framework
• Weighted Duration (Van Breukelen) Attribution
• Yield curve decomposition

Practical exercise: weighted duration attribution

Derivatives

• Forwards
• Futures
• Swaps
• Options

Alternative attribution

• Market neutral
• 130/30 funds
• Leverage
• Futures

• 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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