Funds Roadshow
@DefaqtoAdviser
Core sponsors:
What is risk?
Frank Potaczek
Head of Insight and Consulting
(Fund Management)
Defaqto
Funds Roadshow
Overview
• Today is about gaining an understanding of Risk
• Learning outcomes
• Back to basics
• Regulatory expectations
• Key messages
• Our speakers
Funds Roadshow
Learning outcomes
1.
How volatility is used within modern portfolios
2.
Understanding the language of risk
3.
Other risks that can apply to investments
4.
Diversifying risk with alternative assets
Funds Roadshow
Back to basics
Client
Needs
Research
Solution
Funds Roadshow
Old school fund groupings
Mixed
Non-Profit
Distribution
Balanced
Managed
Cautious
Managed
Passive
Defensive
Flexible
Funds Roadshow
Investment planning
Attitude
to risk
Agreed risk
Capacity
for loss
Desired
outcome
Expected
outcome
Funds Roadshow
A suitable recommendation?
• Simplistic and mechanical means used to extract clients' mandates
• May not accurately capture the proper mandate: “needs & wants”
• Traditional methods of labelling fund risk
• Unreliable and inconsistent method of matching client mandates
Funds Roadshow
What is risk?
1.
‘Academic’ Risk
2.
‘Client’ Risk
3.
‘Adviser’ Risk
Funds Roadshow
Key messages about risk
• How much risk is needed to meet client mandate
• This could be higher than clients are happy with
• Advisers must understand the nature of inherent risk in products
• Risk assessment should be revisited with clients - regularly
• Expectations on what could be achieved
• But no guarantees
Funds Roadshow
What to do?
1.
Appetite – how much do they
2.
Ability – how much could they
3.
Approach – how much should they
The butcher, the baker and the
investment solution maker
Tom Caddick
Toby Vaughan
Santander Asset Management
Funds Roadshow
The butcher, the baker and the solution maker
Content
 The butcher – active versus passive
•
Growth of passive
•
Rationale behind growth
•
Healthy challenges for active management
•
Growth of passive = death of active?
•
Active versus passive: is it even a debate?
 The baker – mixing the right ingredients?
•
Investment process
 The solution maker – the proposition
Funds Roadshow
The butcher – active versus passive
Growth of passive
 Volume of passive products has grown substantially
 10% average annual growth over the last decade
 ETF growth faster than index funds
•
ETF offering broader
•
Index mutual funds mainly restricted to core asset classes
 Passive AUM reached 22% of the UK assets
•
9% for index funds and 13% for ETFs
 Never ending debate between advocates of both passive and active
investing
•
Debates focus on performance and cost
Source: All data IMA Asset Management in the UK 2012-2013 Report.
Funds Roadshow
The butcher
Rationale behind Growth
Studies
Cost-consciousness
Simplicity
Innovation
Wider client base
Transparency
Funds Roadshow
The butcher
Healthy challenges for active management
 Beta returns with alpha prices
 Fund manager skills
 Costs and fees
 Risk Management
 Transparency
no longer an option
 Strategy focus
Funds Roadshow
The butcher
Growth of passive = Death of active?
Local butcher
versus
Supermarket
17
Funds Roadshow
The butcher
Active vs passive – is it even a debate?
 Comparing both strategies is the wrong approach
 The decision is one of many
 Strategies in fund manager toolkit
 We believe it is about blending

A step within a larger decision making
process
 Many other variables need to be addressed
Funds Roadshow
The baker
Mixing the right ingredients
Liquidity
Fees
Style
Turnover
Duration
Transparency
Volatility
Asset Class
Capacity
Quantitative
vs
Qualitative
Market
Cap
Sector
Price
Local vs
Global
Sub-Asset
Class
Absolute vs
Relative
Quality
Market
Team
Event
Short term
vs Long
term
Funds Roadshow
The baker
Investment process
Top Down
Strategy
Monitoring
Framework
Tactical Asset Allocation
Product Risk Management
Portfolio Construction
Portfolio Level
Fund/ Holdings Level
Model Review (TAA/ ACS/ MS)
‘Other’ Risk sources
Asset Class
Positioning
Asset Class Strategy
Manager Selection
Portfolio Construction
Funds Roadshow
The baker
Investment process
Asset Class Strategy - Process Cycle
Asset Allocation - Matrix
Top Down
Strategy
Monitoring
Framework
Tactical Asset Allocation
Product Risk Management
Portfolio Construction
Idea
Generation
Portfolio Level
Fund/ Holdings Level
Model Review (TAA/ ACS/ MS)
‘Other’ Risk sources
Asset Class
Positioning
Asset Class Strategy
Manager Selection
Portfolio Construction
Investment
Universe
Analysis
Monitoring &
Review
Portfolio
Construction
Model Portfolio
Position Sizing & Risk
Research &
Evaluation
Manager Research
Manager
Universe
Quantitative
Screen
Qualitative
Due
Diligence
Funds Roadshow
The solution maker
Creating a proposition
Strategic Design
Client objectives
5%
4%
Expected Retrun
4%
3%
3%
Robust Process
2%
2%
1%
1%
0%
5%
Our Proposition
8%
10%
13%
Expected Volatility
Ongoing Support
15%
18%
Funds Roadshow
The butcher, the baker and the solution maker
Q&A
For intermediaries and professional investors only. Not for public distribution. The value of investments may go down as well as up and investors
may not get back the full amount invested. Nothing in this document should be deemed to constitute the provision of financial, investment or other
professional advice in any way. The responsibility for assessing the suitability of financial products remains solely with the financial adviser. The opinions
expressed here are subject to change and do not necessarily reflect the views of Santander Asset Management as a whole or any part thereof. Santander
Asset Management UK Limited (Company Registration No. SC106669) is registered in Scotland at 287 St Vincent Street, Glasgow G2 5NB, United
Kingdom. Santander Asset Management UK Limited is authorised and regulated by the Financial Conduct Authority. FCA registered number 122491.
www.santanderassetmanagement.co.uk Telephone 0845 6000 181.Calls may be recorded or monitored. Santander and the flame logo are registered
trademarks.
Mini break
Core sponsors:
Suitability and the risk of getting it
wrong
Robert Jukes
Canaccord Genuity Wealth
Management
Funds Roadshow
Clients need help in evaluating risk…
Funds Roadshow
…and we recognise that your skill as an
adviser…
Funds Roadshow
…is helping individuals understand the true
nature of risk…
Funds Roadshow
…and, of course, suitability
Funds Roadshow
FCA on suitability I
A couple of quotes from the FCA’s March 2011 guidance paper
“We have identified common approaches that can
lead to an inadequate assessment of the risk a
customer is willing and able to take: Although most
advisers and investment managers consider a
customer’s attitude to risk when assessing suitability,
many fail to take appropriate account of their
capacity for loss.”
“By ‘capacity for loss’ we refer to the customer’s
ability to absorb falls in the value of their investment.
If any loss of capital would have a materially
detrimental effect on their standard of living, this
should be taken into account in assessing the risk that
they are able to take.”
Funds Roadshow
FCA on suitability II
“Some firms unduly
focus on the risk a customer is
willing to take and fail to take sufficient account
of the customer’s other needs, objectives and
circumstances: for example failing to consider
whether the customer would be better placed
repaying debt, or failing to select an investment
that meets a customer’s need for access or the
term for which the customer wishes to invest.
While attitude to risk is an important
consideration, suitability is not just about making
investment selections that reflect a customer’s
attitude to risk.”
Funds Roadshow
Ability to absorb loss
Ken took early retirement at 63, and he is now 66. His income is made up of his SIPP
which is in income drawdown providing him with £22,500 per annum and the State
Pension. He is married to Barbie who is 65 and in receipt of the State Pension. Barbie
has no other pension income.
The combined income from Ken's SIPP in drawdown and the 2 State Pensions do just
about cover their income requirements. Ken and Barbie have recently downsized from
the family home and they have £250,000 to invest. They have 2 grown up children and
4 grandchildren who they are very close to.
How much of the £250,000 can they afford to lose?
(i)
All of it
(ii) Half of it
(iii) 15% of it
(iv) None of it
?
Funds Roadshow
Select an appropriate portfolio II
Given that Ken and Barbie have the capacity to lose 15% of the £250k they have to
invest please choose an appropriate portfolio from the two options below:
?
(i) 6% average return; 6% volatility
(ii) 8% average return; 12% volatility
2.5%
52.5%
10%
35%
2.5%
17.5%
0%
80%
cash
fixed income
alternatives
equities
cash
fixed income
alternatives
equities
Funds Roadshow
Select an appropriate portfolio II
A
Actually, neither portfolio met the requirements
through the credit crunch or dot com
(ii) 8% average return; 12% volatility
(i) 6% average return; 6% volatility
0%
1300
-5%
-10%
Max peak-to-trough loss (LHS)
6% risk
-15%
-20%
-25%
1100
700
500
-40%
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
1300
-5%
Max peak-to-trough loss (LHS)
-10%
900
12% risk
-15%
-20%
-25%
1100
900
700
500
-30%
-30%
-35%
0%
300
100
-35%
-40%
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
300
100
Funds Roadshow
What does risk really mean?
Funds Roadshow
Portfolio Risk
Funds Roadshow
Counterparty Risk
Funds Roadshow
Diversification Risk
Funds Roadshow
What we really mean by “Risk” is “volatility of
returns”
Which is the correct definition of volatility?
?
A) The sum of squared deviations around the mean
B) The sum of deviations around the mean
C) The square root of the sum of squared deviations around the mean
D) The square foot of the return deviations
E) The mean absolute deviation of returns
F) The sum of the square of the other two sides
Funds Roadshow
Risk is symmetric
Funds Roadshow
The means: Communicating risk and return
Funds Roadshow
The means: Communicating risk and return I
Each of the bars in the chart below represents the typical returns from a well-diversified portfolio with a given asset
allocation and level of risk. Portfolio 1 is the lowest risk, being comprised of assets whose values do not fluctuate, and
portfolio 7 is comprised entirely of assets whose value can fluctuate considerably including being reduced to zero.
£150,000
£140,000
£130,000
Expected return
£120,000
£110,000
£100,000
£90,000
£80,000
£70,000
£60,000
£50,000
1
2
3
4
5
6
7
Funds Roadshow
The means: Communicating risk and return II
Each of the bars in the chart below represents the typical returns from a well-diversified portfolio with a given asset
allocation and level of risk. Portfolio 1 is the lowest risk, being comprised of assets whose values do not fluctuate, and
portfolio 7 is comprised entirely of assets whose value can fluctuate considerably including being reduced to zero.
£150,000
£140,000
£130,000
Expected return
£120,000
£110,000
£100,000
£90,000
£80,000
£70,000
£60,000
£50,000
1
2
3
4
5
6
7
Funds Roadshow
The means: Communicating risk and return III
Each of the bars in the chart below represents the typical returns from a well-diversified portfolio with a given asset
allocation and level of risk. Portfolio 1 is the lowest risk, being comprised of assets whose values do not fluctuate, and
portfolio 7 is comprised entirely of assets whose value can fluctuate considerably including being reduced to zero.
£150,000
£140,000
£130,000
Expected return
£120,000
£110,000
£100,000
£90,000
£80,000
£70,000
£60,000
£50,000
1
2
3
4
5
6
7
Funds Roadshow
The means: Communicating risk and return IV
The table indicates the date on which the theoretical portfolio would have reached its highest and lowest values,
and the length of time it would have taken the portfolio to recover from its lowest point to its previous peak
#1
#2
#3
#4
#5
#6
#7
Peak
-
Feb-94
Jan-08
Jan-08
Jan-08
Sep-00
Sep-00
Trough
-
Jun-94
Mar-09
Mar-09
Mar-09
Feb-03
Feb-03
Recovery
-
Dec-94
Oct-09
Oct-09
Jan-10
Dec-05
Apr-06
Recovery time
-
6 months
10 months
10 months
13 months
34 months
38 months
Funds Roadshow
The average investor in this room…
…is risk rated #5
…but does that mean that you have an average risk tolerance of 9%...
?
…or does 9% represent the maximum risk that you would are prepared to take on?
Funds Roadshow
Average versus risk capped I
Capped Risk
Average Risk
30%
24%
Average risk approach (WMA nee APCIMS)
30%
+/- 2 standard deviations
24%
Capped risk approach, rolling 12m return
+/- 2 standard deviations
18%
18%
12%
12%
6%
6%
0%
0%
-6%
-6%
-12%
-12%
-18%
Jun-97
Jun-99
Jun-01
Jun-03
Jun-05
Jun-07
Jun-09
Jun-11
Jun-13
-18%
Jun-97
Jun-99
Jun-01
Jun-03
Jun-05
Jun-07
Jun-09
Jun-11
Jun-13
Funds Roadshow
Performance Risk
Funds Roadshow
Competitor Risk
Funds Roadshow
Relationship Risk
Funds Roadshow
Mortality Risk
Funds Roadshow
Risk: average or capped?
Which is correct for your clients?
a
Average Risk
?
b
Capped Risk
Refreshment break
Core sponsors:
An Alternative look at Alternatives
Jon Hodesdon
Henderson Global Investors
Funds Roadshow
Key learning outcomes
As a result of attending you will be able to:
• Appreciate what is meant by ‘alternatives’ and the scope of the sector, from the
perspective of a professional investor
• Understand the performance characteristics of alternatives and why professional
investors choose them
• Have insight as to the benefits and issues relating to the main types of alternative
investments
Funds Roadshow
An alternative approach
T.I.N.A
There is no alternative!
We beg to disagree.
Wikimedia commons
Funds Roadshow
More complex or natural progression?
1960
1970
1980
1990
Cookery
Domestic Science
Home economics
Food technology
1980-90
1990-2000
2000-08
2008+
Naïve
diversification
Style box
diversification
Core/ Satellite
Risk budgeting
Source:
Source:
Henderson Global Investors, May 2014
Natixis, September 2013
Progress means we have become more granular and analytical
Funds Roadshow
Alternatives – an overview
Alternative investments – portfolio construction
• Exposure to assets that pure Equities/ Bonds may not provide
• Special investment strategies – IT/ Hedge/ Venture Capital/Property
• Unique/focused asset classes – Infrastructure/ Commodities/ Private Equity/ Distressed debt
Common features
• Diversification benefits
• Low liquidity
• Difficult to value
• Higher due diligence
• Access to information
Funds Roadshow
Different types of alternatives
Alternative assets
Alternative strategies
Private equity
Hedge funds
Property (ground rents)
Absolute return
Infrastructure (renewables)
Volatility strategies
Commodities
Thematics
Investment companies
Esoteric (catastrophe bonds, life policies, litigation )
Why invest in alternatives
• Diversification (low correlation)
• Attractive return profile
The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested
Funds Roadshow
Diversification through low correlation
Global
equity
Global equity
Govt. bonds
UK property
Commodities
Gold
Global private
equity
Global
infrastructure
Hedge funds
Source:
Global govt.
bonds
UK property
Commodities
Gold
Global
private
equity
Global infrastructure
Hedge funds
1.00
1.00
0.10
0.09
0.15
0.15
0.39
0.39
0.04
0.04
0.83
0.83
0.76
0.80
0.55
0.56
0.10
0.09
1.00
1.00
-0.37
-0.37
0.00
-0.01
0.37
0.37
-0.11
-0.12
0.26
0.27
0.53
0.53
0.15
0.15
-0.37
-0.37
1.00
1.00
0.11
0.12
-0.17
-0.17
0.30
0.30
0.10
0.10
-0.04
-0.04
0.39
0.39
0.00
-0.01
0.11
0.12
1.00
1.00
0.31
0.31
0.38
0.38
0.31
0.32
0.32
0.32
0.04
0.04
0.37
0.37
-0.17
-0.17
0.31
0.31
1.00
1.00
-0.09
-0.09
0.11
0.11
0.27
0.27
0.83
0.83
-0.11
-0.12
0.30
0.30
0.38
0.38
-0.09
-0.09
1.00
1.00
0.60
0.64
0.28
0.28
0.80
0.76
0.27
0.26
0.11
0.10
0.32
0.31
0.10
0.11
0.64
0.60
1.00
0.53
0.52
0.56
0.55
0.53
0.53
-0.04
-0.04
0.32
0.32
0.27
0.28
0.52
0.53
1.00
Datastream, as at 31 March 2014. Correlations based on asset returns in sterling terms using monthly data, on total return basis except Gold and Hedge Funds, on price and nav basis.
Indices used are those on slide 7 of this presentation. Past performance is not a guide to future performance.
Global Equity = MSCI Wold TR Index, Global Government Bonds = Bank of America Merrill Lynch Global Government Bond TR Index, UK Property = IPD UK All Property TR Index,
Commodities = TR Jeffries Commodity Research Bureau TR Index, Gold = Gold Bullion LBM US$ Troy Oz converted to £, Private Equity = LPX Major Market TR Index, Infrastructure = FTSE
Macquarie Global Infrastructure TR Index, Hedge Funds = DJ Credit Suisse (Tremont) Hedge Fund Index.
Funds Roadshow
Correlation pitfalls – shifting correlation
MSCI World TR Index and gold price
Last two years gold
has been a better
diversifier
Gold fell
alongside
equities
Source: Datastream, MSCI World Total Return Index, London Bullion Market Gold Bullion price US$/oz, 30 August 2006 to 31 March 2014.
Past performance is not a guide to future performance.
Funds Roadshow
30
Attractive return profiles
Return
Volatility
Risk
and return
characteristics, annualised %, March 2001 to March 2014
24.33
25
20
17.42
15.18
15.18
15
12.79
11.77
10
8.77
6.81
5
4.82
4.84
7.72
6.76
4.52
5.57
5.40
4.39
0
Global
equity
Glob gov bonds
Gold
UK Property
Infrastructure
Private Equity
Hedge funds
Commodities
Source:
Datastream, 31 March 2001 to 31 March 2014, All asset returns in GBP total return using monthly data, except Gold and Hedge Funds, on price and nav basis. Global Equity = MSCI Wold TR Index, Global
Government Bonds = Bank of America Merrill Lynch Global Government Bond TR Index, UK Property = IPD UK All Property TR Index, Commodities = TR Jeffries Commodity Research Bureau TR Index, Gold = Gold
Bullion LBM US$ Troy Oz converted to £, Private Equity = LPX Major Market TR Index, Infrastructure = FTSE Macquarie Global Infrastructure TR Index, Hedge Funds = DJ Credit Suisse (Tremont) Hedge Fund Index.
Annualised volatility = standard deviation of monthly returns. Past performance is not a guide to future performance.
Funds Roadshow
Private Equity – selectivity is critical
Return and risk (% annualised)
A rewarding but volatile ride
Source:
Source:
Datastream, 31 Mar 2001 to 31 Mar 2014, LPX Major Market is an index of
private equity. All performance is total returns, GBP, volatility is standard
deviation of monthly returns. Past performance is not a guide to future
performance.
Datastream, 31 Mar 1999 to 31 Mar 2014, All performance is total returns,
GBP. Past performance is not a guide to future performance.
Wide selection of returns means you need to be selective and time entry and exit points
Funds Roadshow
Private Equity – not homogenous
Direct investment into unlisted companies
Private equity deal types
Venture Capital
Buy-out
Buy-in
Take-private
Turnaround
Distressed
Early-stage
Seed
Early stage
Source: Henderson Global Investors, May 2014
Expansion/
later-stage
venture
Development
/growth
Maturity of company
Secondary
deals
Funds Roadshow
Private Equity – a major employer
40
Boots AA
Private Equity
30
Discounts to net asset value
Attractions
• Strong returns
• Strategic clarity
• Aligned, incentivised shareholders
Premium +/discounts – (%)
Investment Trust Universe
20
10
0
-10
The risks
-20
• Excessive use of leverage
-30
• Downturn in operating performance of companies
• Listed company valuations (comparators) fall -40
• Minimal exit activity/deal flow (low realisations)
-50
• Credit dries up/ over-commitment by investors
-60
Use of third party names is purely for illustrative purposes and does not
imply any association between any third party and Henderson Global
Investors, nor any endorsement or recommendation by, or of, any third
party.
-70
May 04
Source:
Numis Securities Limited, 07 May 2004 to 02 May 2014
May 06
May 08
May 10
May 12
May 14
Funds Roadshow
Property – direct investment
Property’s enticing yield
Attractions
• Tangible asset
• Residual value
• Income primary driver of returns
• Low correlation
• High returns
• Active management potential
Risks
• Tenant default
• Maintenance
• Liquidity
Source:
Datastream, IPD, Henderson Global Investors, 31 Dec 2005 to 30 Apr 2014.
Past performance is not a guide to future performance. Yields may vary and
are not guaranteed. HUKPUT = Henderson UK Property Unit Trust.
Funds Roadshow
Infrastructure
Broadly divided into economic
and social infrastructure
Attractions
• Diversification
• Often monopoly businesses
• Typically high barriers to entry
• Strong cashflow generation and yield
• Active management potential
Risks
• Revenue model
• Skills mismatch
• Operational risks
Funds Roadshow
Infrastructure – concession-based example
Lifecycle of a typical concession
Bidding
(1 - 2 years)
Construction
(2 - 4 years)
Operation and maintenance
(25 - 30 years)
Primary/
development
Secondary/operational
-ve
Source: Henderson Global Investors, May 2014
End of contract
+ve
Financial close
Equity
cashflows
Construction completion
Risk
Funds Roadshow
Infrastructure – a separate asset class?
•
Property
•
•
•
•
Investment process:
sourcing, value-add,
exit
Skills and risk vary
depending on type
Vehicles are similar
Terms of contract
Development-like
activities in primary
phase
Property-operating
skills in operational
phase
Physical assets
•
•
Infrastructure
Private
equity
Fixed
income
•
•
Source: Henderson Global Investors, May 2014
Often government-backed
Often stable or inflationlinked cash flows in
steady-state operational
phase
Funds Roadshow
Commodities – soft and hard
Commodity types
• SOFT are grown (orange juice, pigs, corn,
cocoa, wool, sugar, timber, cotton)
• HARD are extracted (metals, gold, coal,
oil)
Q: What do onions and corn have in
common?
A: They can topple governments!
Funds Roadshow
Commodities – characteristics
Inflation hedge?
Attractions
• Low correlation
• Strong, if cyclical returns
• Inflation hedge?
Risks
• Time lag between investment and
production
• Transportation
• Market manipulation
• Natural disasters/strikes
• Perishable
Source:
Datastream, Brent Crude oil price US$/barrel, US Corn cents bushel, US CPI
less Energy and Food, all rebased to 100, 30 Apr 1994 to 30 Apr 2014.
Funds Roadshow
Hedge funds – the low vol option?
Total return indices
Attractions
• Low volatility
• Breadth of strategies
• Flexibility
• Hedge risks elsewhere
Risks
• Strategy fails
• Low liquidity (limited redemptions)
• Lack of transparency
• Low level of regulation
Source: Datastream, 31 Dec 2012 to 30 Apr 2014, Ignis Absolute Return Govt
Bond Fund and FTSE Brit. Govt. Fixed All Stocks Total Return Indices.
Past performance is not a guide to future performance.
Funds Roadshow
Alternatives – Becoming mainstream
Alternative growth
• More mainstream as investors look for
solutions and greater diversification
•
Financial crisis prompted greater use
of alternatives to help dampen
volatility
•
Investment in personnel with
experience of alternatives to meet
investor demand
•
Growing interest in real assets
Alternatives global AUM (% of total AUM)
Source: The Boston Consulting Group, Global Asset Management 2013
‘Capitalizing on the Recovery ’ (p. 14)
Funds Roadshow
Quick recap
Attractions
• Diversification
• Attractive risk/return profiles
• Hedging capabilities
• Additional skillset and experience of
managers
Disadvantages
• Only as good as underlying
selection/managers
• Liquidity
• Accessibility
• Transparency
“This next song’s about spreading risk in a
volatile market by diversification.”
Funds Roadshow
Henderson Global Investors
201 Bishopsgate, London EC2M 3AE
Tel: 020 7818 1818 Fax: 020 7818 1819
Important information
This document is intended solely for the use of professionals, defined as Eligible Counterparties or Professional Clients, and is not for general public distribution.
Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the
amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law
change.
If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.
Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does
not form part of any contract for the sale or purchase of any investment.
Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will
contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key
investor information document before investing.
Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355),
Henderson Fund Management Limited (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management
Limited (reg. no. 1795354), Henderson Alternative Investment Advisor Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646),
Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London
EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Telephone calls may be recorded and
monitored. Ref: 34S
\\hds.int\data\Distribution\Global\Business Support\Presentations\Multi-Asset\Client or Event specific\Lighthouse Group\Lighthouse Group Presentation- February 2014.pptx
Discretionary management is risk
management
Mark Stevens
Investec Wealth & Investment
Funds Roadshow
What is Risk?
With so much focus on volatility, what are the other components of risks?
“A situation involving exposure to danger”
“The possibility that something unpleasant or
unwelcome will happen”
“A person or thing regarded as
a threat or likely source of danger”
Oxford Dictionaries definitions
Funds Roadshow
Thinking seriously about risk
FCA Guidance re Assessing Suitability (March 2011)
• Failure to collect and properly account for all the information
relevant to assessing risk
• Relying on risk-profiling and asset allocation tools
• Poor descriptions of attitudes to risk
• Failing to select suitable investments for the customer
• Inappropriate focus on the risk a client is willing to take
• Understanding products and underlying assets
• Responsibilities when using tools
Funds Roadshow
How to handle risk
Wants, needs and a common understanding
•
•
•
•
•
Understanding Risk
Tool Risk
Suitability Risk
Mapping Risk
Delivery Risk
Funds Roadshow
“Understanding” risk
Perceived risks and demonstrating a common understanding
• FCA Guidance re Assessing Suitability (March 11)
– Failure to collect and properly account for all the information
relevant to assessing risk
– Relying on risk-profiling and asset
allocation tools
– Poor descriptions of attitudes to risk
– Failing to select suitable investments
for the customer
– Inappropriate focus on the risk a client
is willing to take
– Understanding products and underlying
assets
– Responsibilities when using tools
Funds Roadshow
“Tool” Risk
Using the right tool for the job
• FCA Guidance re Assessing Suitability (March 2011)
– Failure to collect and properly account for all the
information relevant to assessing risk
– Relying on risk-profiling and asset allocation tools
– Poor descriptions of attitudes to risk
– Failing to select suitable investments for the customer
– Inappropriate focus on the risk a client is willing to take
– Understanding products and underlying assets
– Responsibilities when using tools
Funds Roadshow
“Suitability” Risk
Understanding the proposition risks
• FCA Guidance re Assessing Suitability (March 2011)
– Failure to collect and properly account for all the
information relevant to assessing risk
– Relying on risk-profiling and asset allocation tools
– Poor descriptions of attitudes to risk
– Failing to select suitable investments for the customer
– Inappropriate focus on the risk a client is willing to take
– Understanding products and underlying assets
– Responsibilities when using tools
Funds Roadshow
“Mapping” Risk
Ensuring a common understanding of risk and the mapping of ‘suitability’ outputs
•
5 Asset Classes
–
–
–
–
–
•
Fixed Interest
Equities
Commercial Property
Alternative Investments
Cash
5 x 3 level of portfolio risk and investment objective matrix
– Low, Low/Medium, Medium, Medium/High, High
– Income, Balanced, Capital Growth
– Also Defined mandates
•
Mandate Factsheets for each option
– Structure
•
•
•
•
•
•
Quality
Concentration
Diversification
Benchmark
Volatility
Time Horizon
Funds Roadshow
“Delivery” Risk
Ensuring the DFM delivers what is required
• Research
– Depth of expertise and experience
– Range of asset classes covered
– Preferred lists
• Controls (Portfolio testing – automatic alerts)
–
–
–
–
–
Asset allocation
Quality
Concentration
Diversification
Researched Stocks
• Independent Monitoring
Funds Roadshow
Discretionary management is risk management
Delivering the evidence
Funds Roadshow
Contact Details
Mark Stevens
Head of Intermediary Services
Telephone: +44 (0)20 7597 1683
Email:
mark.stevens@investecwin.co.uk
Bath
Belfast
Birmingham
Bournemouth
Cheltenham
01225 341580
02890 321002
0121 232 0700
01202 208100
01242 514756
Edinburgh
Exeter
Glasgow
Guildford
Leeds
0131 226 5000
01392 204404
0141 333 9323
01483 304707
0113 245 4488
Liverpool
London
Manchester
Reigate
Sheffield
0151 227 2030
020 7597 1234
0161 832 6868
01737 224223
0114 275 5100
Investec Wealth & Investment Limited is authorised and regulated by the Financial Conduct Authority and is a member of the
London Stock Exchange and the Investec Group. Please note that the value of investments and the income derived from them
may fluctuate and investors may not receive back the amount originally invested. Past performance is not necessarily a guide
to the future. Current tax levels and reliefs may change and the investments and investment services referred to may not be
suitable for all investors. Investec Wealth & Investment Management Limited is registered in England.
Registered No. 2122340. Registered Office: 2 Gresham Street, London, EC2V 7QP
Q & A panel discussion
Core sponsors:
Closing remarks
Frank Potaczek
Head of Insight and Consulting
(Fund Management)
Defaqto
Funds Roadshow
Learning outcomes
1.
How volatility is used within modern portfolios
2.
Understanding the language of risk
3.
Other risks that can apply to investments
4.
Diversifying risk with alternative assets
Funds Roadshow
Thank you to our sponsors
Thank you for joining us today
@DefaqtoAdviser
Core sponsors: