Sabanci University CAP Presentation
AK ASSET MANAGEMENT
Overview
10/ 2008
AK ASSET MANAGEMENT
September 2006
Shareholders
Group In Brief
• 70 Companies
• 10 Joint Ventures
• 52,000 Employees (as of year end
2007)
• $14.9 Billion Consolidated Revenues in
2007
• $745 Million Consolidated Net Income
in 2007
Shareholders
•
Turkey’s most valuable corporation
•
Turkey’s most profitable privately
owned bank
•
Credit rating above sovereign rating
•
A robust capital structure and a high
capital adequacy ratio of 20.7%
•
An extensive and diversified loan
portfolio with a low NPL ratio of
2.1%
Financial Services Conglomerate
PENSION COMPANY
LEASING
ASSET MANAGEMENT
Shareholding Structure
INSURANCE
SECURITIES
Synergy Through Global Partnership
•
In 2006 Citigroup acquired 20% of
Akbank.
•
In 2007 Ak Emeklilik and Aviva
Emeklilik has been merged as an
equal partnership.
Turkish Asset Management Companies
Breakdown of AUM (As of September 2008)
 The highest portion of the
AUM is comprised of
Money Market Funds
Corporate Clients
5%
Individual Clients
2%
 Non Money Market Funds
and Pension Funds add up
to 29% of AUM
Pension Funds
16%
 Segregated account
management is 7% of
total AUM.
 The highest growth
segments are Pension
Funds followed by
individual and corporate
clients.
A Type Funds
2%
B Type Funds Other
11%
B Type Money
Market
64%
AK Asset Management
Market Shares in Business Segments

Market Share in Pension Funds: 23% (1st)

Share in Total Fund Market: 15.4% (4rd)
AUM
- Breakdown
Corporate
Clients
1%
Segregated
Accounts
2%
Pension
Funds
26%
B Type
Funds
70%
A Type
Funds
1%
2,000
1,000
Pension Funds
2007
2006
Segregated Accounts
Jun-08
Mutual Funds
2005
0
2004

3,000
2003

4,000
2002

Multi-asset class and multi-product
solutions aligned to the clients’ needs.
Wide range of investment styles across
Turkish Asset Classes.
Structured Product Development
capabilities through relationships with a
large network of global investment banks.
Risk management embedded into the
decision systems to assure targeted
performances.
– Historical (USD mn)
2001

AUM
2000
Leading Provider of Asset Management
Solutions
Ak Asset Management
Company Action Project Supervisory Team
Ertunç Tümen, CFA, EVP, Discretionary Portfolio Management, Structured Products,
Research
10 years of experience in the Turkish Investment Industry on decision making systems, risk
management and product development
Murat Konuklar, Manager, Risk Management
10 years of experience on risk management in Turkish Banking and Fund Management.
Hakan Elmas, Research Analyst, Research
4 years of experience in Fund Management and Corporate Finance Industry. In charge of
quantitative analysis , fixed income securities and asset allocation and optimization techniques
Ak Asset Management
Leadership in Fund Performances
• Turkey’s best performing fixed income and equity mutual funds with a long
term perspective on a risk adjusted basis according to Rasyonet, Turkey’s
foremost independent fund rating agent.
Ak Asset Managament Mutual Funds (30/09/2004 – 28/9/2007)
Fund Name
Akbank
Akbank
Akbank
Akbank
Akbank
A
A
B
B
B
Type
Type
Type
Type
Type
Strategy
Variable Fund
Variable Fund
Fixed Income
F.I. Variable
Money Market
Equity-FI Balanced
Equity
Fixed Income
Fixed Income
MM
Ranking
Risk Adj. Peer
Comp.
6/36 (1st quartile)
2/12 (1st quartile)
1/21 (1st quartile)
1/27 (1st quartile)
19/33(3rd quartile)
Ak Asset Management
Leadership in Product Innovation
• Turkey’s first capital protected
funds
•100% Capital protected Best
of ISE 30 and USD/YTL
•100% Capital Protected ISE
Downside accelerated
participation
• Turkey’s first Gold mutual fund
• First ETF on ISE among big four
retail banks
Ak Asset Management
Leadership in Pension Funds
• Founded at October 31, 2007 with
the merger of Ak Emeklilik and
Aviva Hayat & Emeklilik.
800
700
600
500
400
300
200
Jun-08
2007
2006
100
0
2005
• %24 market share in pension
fund business line.
1,000
900
2004
• Total AUM of the company is
around USD 1 bn as of June 2008
Ak Asset Managament Pension Assets
AUM (USD mn)
2003
• AvivaSA selected Ak Asset
Management for management of
its pension funds.
Ak Asset Management
Product Propositions - Funds
Asset Classes
• Mutual Funds Management
• Turkish Equities
•Passive Management
•Active Management strategies with
tracking error limits
• Pension Funds Management
•Passive Management
•Active Management strategies with
tracking error limits
• Structured Funds Management
•Capital Protected and Guaranteed Fund
Products with sophisticated underlyings.
•Exchange Traded Funds
• Alternative Funds
•Hedge Funds, Fund of Funds and
Commodity Funds
• Turkish Fixed Income
• Turkish Money Market
• Gold
• TURKDEX Futures
Contracts
• OTC Derivatives
Ak Asset Management
Customized Solutions for Inst. Clients
Asset Classes
• Traditional Products
• Turkish Equities
•Passive Management
•Active Management strategies with
tracking error limits
• Structured Products
•Capital Protected and Guaranteed
Products with sophisticated underlyings.
•Exchange Traded Funds
•Long Short Strategies
•Yield Enhancement Strategies
• Investment Advisory
• Investment Policy Formulation
•Benchmark and investment universe
•Level of active management required
• Turkish Fixed Income
• Turkish Money Market
• Gold
• TURKDEX Futures
Contracts
• OTC Derivatives
Ak Asset Management
Decision Making System
Asset Management Work Flow
• Dedicated in-house research
personnel
ASSET ALLOCATION
(STRATEGY) COMMITEE
• Extensive numerical analysis
before investment decisions
• Highest quality information
flow into the system through
agreements with best external
service providers
PORTFOLIO
FORMATION
(PORTFOLIO
MANAGERS)
PERFORMANCE
ATTRIBUTION
• Teams concentrated on special
alpha generation areas to
generate model portfolios
RISK
MANAGEMENT
RISK OVERSIGHT
GROUP
• Pre-defined return and
tracking error targets
• Diversification of active risk in
the portfolio according to
potential sources of alpha
SECURITY SELECTION
COMMITEES
•
Risk
Budget
•
Targeted
Tracking
Error
•
Risk-adjusted
portfolio opt.
•
Forecasted Tracking
Error
•
Risk-adj.
Perf.
Analysis
•
Realized
Track Err.
Ak Asset Management
Investment Philosophy Behind Performance Creation
We believe that;
Strategy decision is the foremost contributing factor to the performance of any portfolio,
you may systematically exploit pricing inefficiencies by security selection,
Although market prices of the liquid indices reflect most of the existing information,
systematic trading and market timing strategies with strict loss limits may add alpha to any
portfolio
Decision Making Work Flow
•
Analysis of benchmark optimality considering market’s return expectations
•
Reconciling the total level of active management risk in the portfolio according
to client preferences and profile
•
Attaining the excess return targets to the portfolios& target information ratios
Security
Selection
Commitees
•
Determining the risk budgets according to potential sources of alpha creation
providing that total risk level does not exceed expected tracking error.
Risk
Man.
& Perf Meas.
•
The portfolio managers have limit guidelines checked periodically
Benchmark
Commitee
Strategy
Commitee
Ak Asset Management
Decision Making Organization – Team Based Approach
Benchmark
Commitee
Security
Selection
Commitees
Risk
Man.
& Perf Meas.
Benchmark Committee: Meets every month. Benchmark decisions
are made for all different portfolio structures according to optimization
of expected return and volatility estimations.
Strategy Committee: Meets twice a month. Developments in the
global and domestic markets are analyzed to give insight to portfolio
managers
Fixed Income Committee: Meets weekly. Fixed Income security
selections, trade levels and quant models input are analyzed and
fixed income model portfolios are formed
Stock Selection Committee: Meets weekly. Fundamental data,
valuation levels and quant models input are analyzed to create the
equity model portfolios.
Risk Committee: Meets weekly. Scenario analysis and stress test
are activated and reported to management.
Performance Committee: Meets each month. Portfolio managers
give report on their monthly performances to the top management.
Ak Asset Management
Leadership in Risk Management
• Worked with Turkey’s leading risk
management software vendor
with significant academic linkages
to create Turkey’s first “Buy-side
risk solution”
• Internal regulations prepared
taking UCIT III Risk Management
Reporting standards
• Risk management integrated in
the investment management
process
E(R)
Expected Return
• Sector’s first full fledged Risk
Management Department founded
in 2006
Confidence
Universe
Global VaR
Limit set by
the “Board”
Ak Asset Management
An Independent Risk Management Department
•
An independent Risk Management
Department has been established on
June 2006 to implement and execute the
overall risk management process and
risk oversight.
•
To build up an efficient and integrated
risk management system - the first in
the Turkish Asset Management
Industry -, a professional Java Platform
based Risk Software is implemented
with advanced product features. The
integration of this risk software has been
maintained with the Reuters 3000 Extra
Platform.
•
A policy document titled “ Risk
Management Principles and Policy
Document” has been produced in
accordance with UCITS III regulations.
•
This policy document has been designed and
integrated with the total risk approach and risk
definitions with predefined conditions on the
measurement, monitoring of the risk factors for
different asset classes, reporting procedures,
the policy for complex financial structured
products, derivatives transactions and capital
protected funds, guaranteed funds.
Market Risk
Liquidity
Risk
Counterparty Risk
Foreign
Exchange
Risk
Volatility and
Correlation
Risk
Commodity
Risk
Equity Risk
Risk
Measurement and
Monitoring
Investment Principles
and compliance with
Policy Directives
Credit
Risk
Interest Rate
Risk
Operational Risk
Ak Asset Management
Risk Methodology
• UCITS III requires management companies to take a reasonable care to organize a
risk management process to monitor and measure as frequently as appropriate the
risk evolution of a fund positions and their contributions to the overall risk profile of
the fund.
• The risk appetite of the board has to be defined in line with risk limits
• The choice of the appropriate benchmark
• Consistent risk management, monitoring and reporting process applies
• Coherency of risk measures permits aggregation and definition of the risk limits
• The style of the fund has to be in line with the risk appetite of the client
Risk Measurement
•
•
•
•
Determination of the risk measures and metrics to be used (VaR)
Evaluation of the global exposure to the derivative instruments
Independent valuation of the OTC derivative instruments
Sophisticated strategies can lead to identify the non-linear relationships between
risk and return.
Ak Asset Management
Traditional Approach vs Our approach
Ak Asset Management
Risk Measures and Risk Appetite
• Risk Measures should be in line with
the portfolio’s level of sophistication
and risk attribution
• The Fund is expected to evolve in the
“Confidence Universe” area
• %20 NAV limit applies to aggregate
counterparty risk exposures and
position, transferable securities,
money market instruments and
deposits
Expected Return
• The risk appetite of the “Client”
should determine the aggregate limit
on the VaR
E(R)
Confidence
Universe
Global VaR
Limit set by
the “Board”
Estimated VaR
1st Project
• Problem Definition: Being able to present the
most suitable asset allocation proposition to
clients with diverse risk and return preferences.
• Project Objectives and Scope: Developing a
portfolio analysis tool for optimal client portoflio
management.
• Project Support and Resources: Data
Providers such as Bloomberg, Reuters and
Matriks; ,Reference Books and Articles.
• Business Concepts and Methods: Financial
Econometrics, Statistics, Optimization Concepts
Modern Portfolio Theory
Suggestion: Black Litterman Model
•The Black-Litterman asset allocation model, created by Fischer Black
and Robert Litterman, is a sophisticated portfolio construction method
that overcomes the problem of unintuitive, highly-concentrated
portfolios, input-sensitivity, and estimation error maximization.
•The Black-Litterman model uses a Bayesian approach to combine the
subjective views of an investor regarding the expected returns of one or more
assets with the market equilibrium vector of expected returns (the prior
distribution) to form a new, mixed estimate of expected returns.
Implementation of BL Model
1.Select a portfolio (or palette) of asset classes
2a. Use our estimated inputs
2b. Override our estimated inputs
•
•
•
•
•
–Risk-Free Rate
–Risk Premium of the presumed efficient portfolio
–Market Capitalizations*
–Standard Deviations
–Correlations
3. Specify Views (optional)
BL Model Output
2nd Project
• Problem Definition: Constructing quantitative
multifactor model producing buy/sell signals.
• Project Objectives and Scope: Implementing
quantitative market timing trading strategies.
• Project Support and Resources: Bloomberg,
Reuters and Matriks, Reference Books and
Articles.
• Business Concepts and Methods: Financial
Econometrics, Statistics, Financial Modelling
Market Timing
Market Timing
Everyone wants to time markets, and it is not difficult to see the
reasons for the allure.
A successful market timer can deliver very high returns, with
relatively little effort.
The cost of market timing, though, is high both in terms of
transactions costs (higher turnover ratios and tax bills) and
opportunity costs (staying out of the market in years in which the
market goes up). In fact, you need to be right about two-thirds of
the time for market timing to pay off.
If you do decide to time markets, you have a wide range of
market timing tools.
3rd Project
• Problem Definition: Hedge funds applications
are very new financial products for the Turkish
financial sector.
• Project Objectives and Scope: To display the
best suitable hedge fund strategies for the
Turkish capital markets.
• Project Support and Resources: Bloomberg,
Reuters and Matriks; ,Reference Books and
Articles.
• Business Concepts and Methods: Financial
Econometrics, Statistics, Financial Modelling
Why Hedge Funds?
•
Investment philosophy is driven by the inefficiency resident in liquid markets created by
existing market participants and is characterized by the following:
•
- All public information is basically reflected in current stock prices in liquid markets
•
- Motion in stock prices can be filtered and cleansed to identify noisy components
•
- A more efficient portfolio can be created using high frequency data inputs
•
- On average, existing portfolio management techniques do not produce long-term alpha
•
- Over-extending the amount of capital on one strategy will arbitrage out excess returns
over time
•
- Shorting provides significant risk and return enhancements and should be an integral
component of a balanced portfolio, but must be re-optimized often to be profitable
•
- Unlike most relative spread quant approaches, absolute directional approaches can
create positively skewed risk/return profiles without introducing excessive tail
Hedge Funds
• An investment structure
• General partner(s) (hedge fund manager) and
limited partners
• The manager handles all of the trading activity
• The limited partners supply the capital
-100-500 investors
- “accredited investors”
- “qualified purchasers”
• Management companies
Hedge Funds
• Managers use strategies to create profit
• The limited partners receive a
percentage of the profits
• The hedge fund managers charge 2 sets
of fees
• 20-30% performance fee
• 1-2% management fee
• Today: $900 billion, 8,500 funds
Investment Universe
Examples on HF Strategies
Macro Funds
• A divergent/convergent strategy, meaning that it is
defined by bets on prices of markets or securities moving
apart/ closer together respectively
• This strategy seeks to profit from changes in global
financial markets and take positions to exploit changes
in interest rates, exchange rates, liquidity and other
macroeconomic factors
• Uses moderate amounts of leverage (investing with
borrowed money)
Examples on HF Strategies
Fixed Income Arbitrage
• This is also a convergent / divergent
strategy.
• It allows trading managers to take
advantage of mispricing opportunities
between different types of fixed income
securities while neutralizing exposure to
interest rate risk.
• This strategy employs large amounts of
leverage.