For every financial institution in the world today, the need for sophisticated asset liability management (ALM) has become imperative.

Volatile global markets, proliferation of new financial products and changing regulatory environments have made asset liability management an increasingly challenging task for banks, fund managers, hedge funds and other institutions.

Furthermore, the impact of the changing regulatory environment is presenting new challenges in capital sourcing and allocation.

 

This 4-day intermediate-level program is designed to give ALM and treasury professionals hands-on expertise for immediate implementation.

Covering strategic, technical, and operational aspects of ALM, including:

• Current best practices in ALM techniques for various types of financial institution
• Best practices of ALM strategies
• NEW: Impacts of recent Basel III and liquidity ratios on ALM
• NEW: Current initiatives and best practices in Transfer Pricing
• Risks in financial assets, liabilities and off-balance sheet positions
• Market, credit, liquidity management and operating risks in ALM
• Applications of interest rate, foreign exchange, equity and credit derivatives
• Measuring risk-adjusted performance relative to regulatory and economic capital
• NEW: Alternative designs for ALCO organization and information packages

 

The programme begins by reviewing strategic and tactical considerations in traditional ALM frameworks and extends this analysis to include credit activities, alternative investments, derivatives applications, consumer liability products, structured financing, and capital strategies.

The programme includes optional late-afternoon sessions on each of the first three days to explore specialised issues in ALM for delegates from different backgrounds and institutions, including:

1. strategic designs of consumer financial products,
2. risks in alternative investment portfolios, and
3. liability-driven and immunisation strategies in ALM.

The programme makes extensive use of short problems, case studies, Excel exercises, and Bloomberg information. Delegates should have a basic understanding of financial markets and products.

 

The programme is designed for intermediate and senior professionals working for (or working with) banks, savings institutions, building societies, pension funds, assurance companies, asset managers, and hedge funds including:

• Chief Financial Officers
• Securities Analysts
• Treasury Managers
• Insurance Executives
• Asset & Liability Managers
• Pension Fund Managers and Trustees
• Consumer Product Managers
• Auditors/Accountants
• Market and Credit Risk Managers
• MIS and Operations Executives
• Balance sheet Managers
• Budgeting & Planning Executives
• Controllers
• Central Bankers (Supervision Department)
• Portfolio Managers
• Investment Professionals

All delegates will receive comprehensive course documentation for use during and after the program, including CDs with extensive analytical models and exercises. This enables delegates to take back to their institutions resources that help in reviewing and applying concepts.

Day 1

ALM introduction and overview

• The roles of ALM in various financial institutions
• The roles of ALM in various financial institutions
• The strategic imperative for effective ALM
• Risk management in the ALM process
• Regulatory, financial markets, and operations perspectives of ALM
• Mapping of institutional assets and liabilities to various types of risks
• Organisational and institutional requirements for ALM
• Transfer pricing issues in ALM
• The role of Treasury in ALM
• Challenges to the practice of ALM

ALM frameworks for net interest income

• Identifying interest-rate sensitive assets and liabilities that impact net interest income (NII)
• Traditional gap analysis of standard financial asset and liability products
• Basis and yield curve twist risks
• Measuring NII risks with static and sensitivity analyses
• Analyses of impacts on cash flow, accounting performance, and economic value
• Multi-currency NII ALM
• Complications from financial, contractual, and real options in assets and liabilities
• Estimating impacts of volatility and correlations in assets and liabilities
• Stress testing techniques in ALM
• NII ALM impacts on liquidity and capital management
• Teams work: short exercises and case studies

Managing NII risks with interest rate and foreign exchange derivatives

• Review of interest rate and foreign exchange derivatives
• Pricing forwards, futures, swaps, and options
• Mark-to-market and mark-to-model techniques
• Applications of interest rate derivatives in NII risk management
• Hedging strategies and effectiveness
• Accounting, liquidity, and counterparty concerns arising from derivatives in ALM
• Measuring and managing cost-to-close metrics
• Teams work: short exercises and case studies

Day 2

Transfer pricing and consumer financial products in ALM

• The role of retail and commercial deposits in ALM
• Estimating deposit runoff, elasticity, and liquidity impacts
• Structuring, pricing, and marketing various types of deposits in ALM
• Characteristics of insurance and other alternative consumer products
• Organisational interactions of consumer products businesses in ALM
• Transfer pricing policies of consumer funding sold to Treasury
• Teams work: short exercises and case studies

Statistical techniques in ALM

• Review of basic statistical distributions, moments, and techniques
• Measuring risks with standard parametric approaches
• Value at Risk (VaR) techniques
• Advantages and limitations of VaR
• Correlated modeling of risk in ALM
• Measuring risks with Monte Carlo simulation techniques
• Teams work: short exercises and case studies

Market risks in asset portfolios and ALM

• Trading, available for sale, and investment portfolios in various financial institutions
• Portfolio mean – variance metrics and controls
• Risks in bonds and fixed income portfolios
• Duration, DV01, convexity, VaR and other analytical frameworks for fixed income
• Risks in commercial and retail mortgages and MBO portfolios
• Risks in off-balance sheet commitments and contingencies
• Risks in derivatives portfolios
• Risks in credit card portfolios and various ABS products
• Risks in equity portfolios and equity arbitrage strategies
• Understanding equity beta and alpha in ALM context
• Establishing policies and controls for market risks
• Teams work: short exercises and case studies

ALM risks in structured products and alternative investments

• Structured investment products
• Capital guaranteed notes
• Constant Proportional Portfolio Insurance (CPPI) products
• Leveraged credit-index and CPDO products
• Managing risks in arbitrage portfolios
• Special liquidity and other concerns in alternative investments
• Teams work: short exercises and case studies

Credit risks in asset portfolios and ALM

• Credit risks in commercial/retail loans, credit risky bonds, and derivatives
• Interpreting and using credit spreads in risk – return analyses
• Expected and unexpected credit losses
• Credit metrics: probability of default (PD), exposure at default (EAD), loss given default (LGD), and credit correlation
• The linkage of PD, EAD, and LGD to credit spreads
• Default intensities and migrations
• Estimating recovery rates and LGD from real world experience
• Estimating default probabilities from current market data
• Real-world versus risk-neutral default probabilities
• Estimating Credit Value at Risk in ALM frameworks
• Establishing policies and controls for credit portfolio risks
• Teams work: short exercises and case studies

Day 3

Credit portfolio risk management techniques in ALM

• Benefits and challenges of active credit portfolio risk management
• Credit structuring alternatives as ALM risk mitigants
• Using credit derivatives to manage and/or securitise credit risk
• Review of credit default swaps (CDS) and other credit derivatives products
• CDS pricing and mark-to-market valuation
• Comparing and contrasting credit swaps and securitized CDO/CLOs as ALM tools
• CDS and cash/hybrid CDO/CLO product strategies in ALM portfolio management
• Teams work: short exercises and case studies

Operational risks in ALM

• Operational risk management framework in ALM
• Evidence and impact of operational failures
• Key components of operational risk
• Specific tools and models for operational risks in ALM
• Operational value-at-risk
• Operational risk transfer techniques
• Teams work: short exercises and case studies

Financing strategies and liquidity risks in ALM

• Defining the mix of financing of alternatives
• The relationship of financing versus capital
• Developing and maintaining financial market access
• Measuring costs of financing alternatives
• Framework for optimising financing choices
• Ratings strategies and enterprise risk
• Managing liquidity and maturity profile
• Maintaining desired rating and financial flexibility
• Market risks inherent in financing choices
• Use of derivatives in financing strategies
• Securitisation and credit enhancement financing strategies
• Impact of regulatory capital requirements on financing strategies
• Teams work: short exercises and case studies

DAY 4

Managing liquidity risks

• What can go wrong in liquidity management
• Examples and lessons of liquidity challenges
• Linkages of liquidity risks to market, credit, and operations risks
• Developing policies and controls on liquidity risk management
• Elements of liquidity contingency planning
• The role of ALM in liquidity management
• Teams work: short exercises and case studies

ALM and regulatory/economic capital

• The regulatory environment for financial institutions
• The regulatory environment for financial institutions
• Summary of Basil II and Basel III impacts on credit, market, and operations risk management
• The impacts of Basil II and Basel III on practical ALM
• Linkage of regulatory capital to risk portfolios
• Regulatory capital mitigation strategies
• Regulatory impact of financing and capital decisions
• Relationship of regulatory capital and economic capital
• Teams work: short exercises and case studies

ALM and financial performance

• Balancing financial performance targets within risk management policies and controls
• Developing acceptable business and entity-wide risk profiles
• Measuring risk-adjusted financial performance
• Returns on economic capital
• Efficient employment and allocation of capital
• The role of ALM in capital management and employment
• Teams work: short exercises and case studies

Summary and close

• Mr Allen is an expert consultant in ALM, treasury, capital markets and corporate finance.  He has consulted for most large financial institutions and many large corporates and investors in major markets around the world. 

  He has published articles and books on various finance, capital markets, derivatives, and risk management topics. His emphasis is on the practical implementation of financial tools and techniques within various banks, institutional investors, government and supranationals, and corporates. 

  Previous to his in consulting career, Mr Allen worked with J.P. Morgan in various treasury,  ALM, capital markets, and derivatives activities in London and New York. He previously worked as the Chief Investment Officer/Chief Finance Officer of a university. Mr Allen continues to act as an advisor to several hedge fund managers for market-neutral and other structured derivatives strategies.

  Mr. Allen took his MBA and Doctoral (DBA) studies in international banking and capital markets at the Harvard Business School. He received the Elijah Watts Sells Award and the John S. Glenn Gold Medal for outstanding performance on the CPA examination while he was working with Ernst and Whinney (now Ernst and Young), where he worked both in the international audit and tax divisions. Mr Allen was awarded the Robert Beyer Bronze Medal for outstanding performance on the Certified Management Accounting (CMA) examination. Mr Allen earned the professional designation of Charter Financial Analyst (CFA) while serving as a buy-side portfolio manager and then the chief investment officer for the endowment fund of Rhodes College. He is a certified in the Global Association of Risk Professionals (GARP) and the Professional Risk Management International Association (PRMIA). Most recently, he has participated in the CFA’s newly-designated Certificate in Investment Performance Management (CIPM).
  

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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