invesco perpetual global targeted returns fund investment … · 2014-09-09 · invesco perpetual...
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Title
/Date
Invesco Perpetual Global Targeted Returns Fund Investment process
David Millar This presentation is for Professional Clients
only and is not for consumer use. Head of Multi Asset
Citywire New Model Adviser September 2014
Invesco Perpetual Global Targeted Returns Fund Investment proposition
1
126 ideas as at 31 August 2014. 2MSCI World. *Please note there is no guarantee this gross performance target or volatility target will be achieved.
Portfolio: Typically 20-30 individual investment ideas across asset classes1
Target return: 3-month Sterling LIBOR plus 5% on a rolling, three-year annualised basis*
Target volatility: Less than half global equity2 volatility over a rolling, three-year period*
For illustrative purposes only.
Fund risk
Total independent risk
Div
ers
ific
ation b
enefit
Investing in ideas
Invesco Perpetual Global Targeted Returns Fund Investment philosophy
“We believe we can achieve positive total returns over all market environments over a rolling 3-year period through an unconstrained approach to sourcing return ideas and through robust risk management”
David Millar, Head of Multi Asset
2
Unconstrained approach:
2-3 year investment horizon
High conviction macro investment ideas
Across asset types and geographies
Robust risk management:
Risk-based analysis
True diversification
Transparency and liquidity
Source: Invesco Perpetual.
Invesco Perpetual Multi Asset capability Core investment team with broad multi discipline support
3
Source: Invesco Perpetual as at 30 June 2014.
A team of macro specialists solely focused on the Invesco Perpetual Global Targeted Returns Fund
David Millar, FIA – Head of Multi Asset, Fund Manager 25 years of investment experience Background as an actuary and fixed interest fund manager
Dave Jubb, FIA – Fund Manager, Multi Asset 32 years of investment experience Background as an actuary and investment strategist
Richard Batty, PhD – Fund Manager, Multi Asset 19 years of investment experience Background in economics and investment strategy
Gwilym Satchell, PRM – Risk Manager, Multi Asset 6 years of multi-asset investment experience
Qualified risk manager
Georgina Taylor – Product Director, Multi Asset 13 years of investment experience Background in sell-side equity
Danielle Singer – Sr Client Portfolio Manager, Multi Asset 12 years of investment experience Background in multi asset portfolio strategy
Saul Shaul – Fund Analyst, Multi Asset 8 years of investment experience Background in front office IT
Steve Hawes – Trainee Analyst, Multi Asset 4 years of investment experience Background in investment performance, client services
Front office
Invesco Ltd.’s Chief Economist
Henley investment teams
Other Invesco teams
CIO oversight and operations
Dealing
Global team (incl. multi asset specialist, Simon Ferguson)
Operations
Invesco Global Operating Platform
Marketing Support
Multi asset product managers, Damian May & Michelle Shwarzman
Governance
Independent risk function
Global performance measurement and Risk
Compliance
Internal audit
On-the-ground presence in 20 countries, serving clients in more than 150 countries
Investing in ideas Our three step process
4
For illustrative purposes only.
Approving ideas
Thematic
T
Economic
E
Analytic
A
Managers
M
Combining ideas
Risk Scenarios Structure Liquidity
Implementing ideas
Order Comply Execute Review 4 Review and Oversight
1 Research
2 Fund management
3 Implementation
Approving ideas
Approving ideas: a repeatable process A TEAM approach
6
For illustrative purposes only.
Multi Asset team
Invesco Chief Economist
CIO challenge process
External research calls
Proprietary research databases
In
pu
ts
Henley and IVZ fund managers
Research
no
te
Must generate a positive return in our central economic thesis
Initial sizing and implementation route
Assigned a 1, 2 or 3 star rating
Justification for the idea in words
Economic and corporate drivers
Industry standard and proprietary valuation metrics
The views of Invesco asset class specialists
Monthly IDEAS and Macro meeting
Monthly economic update
Quarterly oversight meeting
Monthly Investment meeting and calls
Weekly research calls
Weekly and monthly research updates
1 Research
Thematic
T
Economic
E
Analytic
A
Managers
M
Approving ideas
Approving ideas Sourcing individual research ideas
7
Idea: US bond duration
We believe that the 30-year US bond will provide return as the yield curve flattens on any bond sell-off and gives protection from any risk market sell-off which will be reflected in US 10-year bond yields rising.
Idea: US dollar vs the euro
The long-term growth outlook favours the US over Europe. The euro looks expensive and therefore is our chosen implementation route for this economic view.
Idea: UK vs Swiss equities
Cyclical stocks in the UK are good value relative to the expensive defensive stocks in Switzerland. The Swiss Franc is also strong which will be a drag on profitability for exporters in Switzerland.
Idea: Global corporate sector
We believe the global corporate sector is in good shape. We have chosen to access the corporate sector via equities rather than corporate bonds, on valuation grounds, and implement the view through two IP equity funds.
Source: Invesco Perpetual as at 31 July 2014. For illustrative purposes only.
1 Research
Equities Government Bonds
Corporate Bonds
Real Estate Collective Investment Schemes
Volatility Instruments
Inflation Products
Currencies Commodities
Each idea includes a suggested implementation route from across asset types and instruments
Approving ideas US dollar versus the euro
8
For illustrative purposes only. Source: Bloomberg, as at 25 August 2014.
The long-term growth outlook favours the US over Europe; the euro is expensive
European banks are still deleveraging, deflation is a real risk and ultimately the ECB will need to take aggressive action to weaken the currency. Flow drivers (US investors buying European assets, FX reserve diversification) are also slowing
Fair value is around 1.25. Current level is 1.31
IP fixed income managers believe in a US economic recovery starting to take hold. Members of our European equity team agree that the euro needs to weaken.
1 Research
Thematic
T
Economic
E
Analytic
A
Managers
M
1.26
1.31
1.36
1.41
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
US d
ollars
per
Euro
US dollars per 1 Euro
Approving ideas UK equities versus Swiss equities
9
Source: Datastream as at 31 July 2014. For illustrative purposes only.
Favour UK relative to Swiss equities because they are cheaper and should benefit from a gradual global/emerging market pick up
The Swiss Franc is expensive and Swiss equities are vulnerable if global interest rates rise
The UK market is on a 10% discount to where the market typically trades versus Switzerland
Some of our IP European equity managers are overweight UK equities and underweight Swiss equities
1 Research
Thematic
T
Economic
E
Analytic
A
Managers
M 16% 9% 5% 4% 4% 4% 1%
-2% -12%
-30% -40%
-20%
0%
20%FTSE 100 sector
weights rel toSwiss Market Index
Approving ideas Our central economic thesis
10
Source: Invesco Perpetual as of 31 July 2014. For illustrative purposes only.
Global monetary accommodation Continued low short interest rates but potential for rises (e.g.UK, US) Central bank hubris? Further action if needed but with ever-reducing impact Growth multiplier deficiencies remain across economies
Low, but positive, global economic growth Growth momentum is below previous cycle levels; Downside risks in some developed economies; EM policy and market adjustments Concerns over sustainability in China and the impact on commodities
Continued disinflation Deflation concerns in some developed markets, e.g. Europe Emerging market adjustments will be helped by disinflation Implied inflation priced into forward interest rates is too high
Diminishing support for risk assets Cautious whether future earnings will grow enough to support equity valuations Economic justification for IG and HY credit valuations is difficult Diversified alpha as an additional source of value
Market interference as a source of volatility Continued macro-prudential tightening changing the investment landscape Potential for policy errors Long-term impacts from the misallocation of capital
1 Research
Combining ideas
Combining ideas Our fund management process
12
For illustrative purposes only.
A number of risk measures: independent risk, contribution to risk, total fund risk
Test a range of possible, even if not probable, scenarios
Use derivatives where appropriate for efficient and precise implementation
Engage dealers in liquidity analysis
Risk
Scenarios
Structure
Liquidity
2 Fund management
Ideas expressed through derivatives
Ideas expressed through funds
Cash and derivatives
Funds
Physical portfolio breakdown Portfolio breakdown by risk
c.60% c.40%
Combining ideas
0
2
4
6
8
10
12
14
16
18
20
Independent risk Fund risk
Volatility - UK Equity vs UK Rates
Volatility - Chinese Equities
Volatility - Australian Dollar vs US Dollar
Volatility - Asian Equities vs US Equities
Interest Rates - US vs Europe
Interest Rates - US Duration
Interest Rates - UK vs France
Interest Rates - Sweden vs Europe
Interest Rates - Selective EM Debt
Interest Rates - Japanese Curve Flattener
Interest Rates - European Curve Steepener
Interest Rates - Australian Short Rates
Equity - US Large Cap vs Small Cap
Equity - UK vs Switzerland
Equity - Sell Puts as Long US Equity
Equity - Sell Puts as Long German Equity
Currency - US Dollar vs Euro
Currency - US Dollar vs Canadian Dollar
Currency - Norwegian Krone vs UK Pound
Currency - Brazilian Real vs Chilean Peso
Credit - European Curve Flattener
Credit - High Yield
Equity - UK
Equity - Selective Asia Exposure
Equity - Global
Equity - European Divergence
Combining ideas Achieving diversification
13
Source: Invesco Perpetual as at 31 August 2014. 1There is no guarantee this target will be achieved. For illustrative purposes only. This information relates to the portfolio based on market conditions as at 31 August 2014, subject to change.
Total fund risk 4.31%
Total independent risk 18.88%
2 Fund management
50% of global equity risk
Diversification benefit
A portfolio designed to target equity-like returns for less than half the risk of global equities
over a rolling, three-year period1
Combining ideas Stress testing and economic scenario analysis
14
1Blue line indicates probability-weighted best estimate, red line indicates worst case using lower quartile outcomes. For illustrative purposes only.
1. Regulatory stress testing of the portfolio using StatPro based on periods of historic market stress, e.g. Lehmans, European debt crisis
2. Analysis by the Multi Asset team of possible scenarios going forward
2 Fund management
Scenario Characteristics
Japan deflation Nikkei at 9000 and Japanese Yen at 75 to the US Dollar
Nationalism Spanish spreads 5% over bunds, Asian equities down 20%
EM outflows Emerging markets FX index down 20%, US 5-Yr Treasuries yields up 150bps
Regional War Crude rises to $150, European equities fall 25%
Cash is King S&P falls to 1000, yield on US 10-yr Treasuries rises to 5%
Melt Up European equities up 30%, Commodities CRB index up 20%
Debt Deflation S&P falls to 1000, yield on US 10-year Treasuries falls to 1%
0 5 10 150
50
100
150
Sim
ula
tio
n c
ou
nt
Fund return
Distribution of potential fund returns for a given scenario1
Combining ideas Thinking carefully about implementation
15
Source: Invesco Perpetual as at 31 July 2014. For illustrative purposes only. *assumes option implementation at 2 times notional of futures implementation
2 Fund management
Idea: Favour UK relative to Swiss equities because they are cheaper and should benefit from a gradual global/emerging market pick up
Equities Government Bonds
Corporate Bonds
Real Estate Collective Investment Schemes
Volatility Instruments
Inflation Products
Currencies Commodities
-15
-10
-5
0
5
10
15
5107 5376 5659 5957 6270 6600 6930 7277 7640 8022 8423
Level of the FTSE 100
payout using call options* payout using equity index futures
Combining ideas A slowly evolving portfolio
16
Q3/4 2013
+
+
-
o
Interest Rates - UK vs Germany
Equity - UK vs Switzerland
Equity - Nasdaq vs Taiwan
Equity - Europe to European Divergence
Q1 2014
+
+
-
o
o
Currency - Norwegian Krone vs UK Pound
Volatility - UK Rates vs Equity
Interest Rates – US Curve Steepener
Interest Rates - UK vs Germany to UK vs France
Equities – protection added to UK and Global ideas
Q2 2014
+
+
-
Currency – US Dollar vs Euro
Interest rates – Selective EM Debt
Currency – US Dollar vs Japanese Yen
Q3 2014
+
+
-
o
Equities – Sell DAX Puts as Long German Equity
Interest Rates – Japanese Curve Flattener
Credit – European Financials
Interest Rates – US Duration now includes implementation through swaptions
Source: Invesco Perpetual as at 31 July 2014. For illustrative purposes only.
2 Fund management
Combining ideas Our risk management process
17
GPMR = Global Performance Measurement and Risk.
2 Fund management
CIO Oversight
Managed by Richard Underwood, Head of Investment Oversight
Based in Henley on the investment floor
Independently analyse fund information
Interact with the multi asset fund managers on a day to day basis on the fund
Questions range from the risk of the fund to how many ideas we have in the fund at any one time
Independent Risk Function (IRF)
Primary role is to report to the regulators
Use a separate risk system StatPro
Run historic stress tests on the fund to highlight risks
The Multi Asset team meet with the IRF monthly to discuss stress test results and to reconcile risk models
4 Review and Oversight
Implementing ideas
Implementing ideas Invesco Global Trading Desk
The Global Trading Desk includes 46 trading professionals on 9 desks in 7 countries
19
Source: Invesco Perpetual as at 31 December 2013. Numbers are subject to rounding.
Order
Comply Americas Houston (6) Atlanta (14) Toronto (2)
UK & Europe London/ Henley (10)
Asia Pacific Hong Kong (6)
Tokyo (5) Taipei (2)
Melbourne (1)
Alternatives & FX 521.40bn
Cash equities - Americas 119.7bn
Cash equities - Asia (incl. Japan) 41.70bn
Cash equities - EMEA 64.10bn
Invesco: trading volumes, US$746.9bn (2013)
9%
5%
16% 70%
Execute
Review
3 Implementation Implementing ideas
Implementing ideas The operational and trading platform
20
Source: Invesco as at 14 February 2014. For illustrative purposes only.
4 Review and Oversight
• A Global Fund Manager
• Global derivatives dealing capability
• Global Performance Measurement and Risk and Compliance
• Integrated global operating platform
3 Implementation
TRADE EXECUTION
Conclusion
Conclusion Why consider Invesco Perpetual for Multi Asset?
We believe changing market dynamics require access to an unconstrained research agenda in order to generate positive returns long term.
The Invesco Perpetual Global Targeted Returns Fund seeks to offer a target return for investors through genuine diversification from a single integrated product using a portfolio of investment ideas.
The fund is run by a dedicated team of macro specialists who have a fundamental long term investment horizon, consistent with the philosophy across the Henley-based investment centre.
The fund has access to diversified alpha sources across Invesco Perpetual and Invesco product range.
The team is embedded in a truly global investment management organisation underpinned by a global infrastructure across distribution, dealing, oversight, and global 3rd party relationships.
22
Appendix
Invesco Perpetual Global Targeted Returns Fund Portfolio physical investment
24
For illustrative purposes only. This information relates to the portfolio based on market conditions as at 6 March 2014, subject to change.
Funds
Invesco Asian Equity Fund – Stuart Parks – Henley
IP Monthly Income Plus Fund – Paul Causer, Paul Read, Ciaran Mallon – Henley
IP Global Equity Fund – Nick Mustoe & Team – Henley
Invesco Pan European Structured Equity Fund – Michael Fraikin, Thorsten Paarmann – Frankfurt
Invesco Pan European Equity Fund – John Surplice, Martin Walker – Henley
IP Income Fund – Mark Barnett – Henley
IP UK Growth Fund – Martin Walker – Henley
IP Global Equity Income Fund – Nick Mustoe & Team – Henley
Cash
Cash will be managed to the same criteria as Invesco Short-Term Investment Company (Global Series) plc (STIC – £ only)
– Managed by Invesco Fixed income – Counterparty exposures limited – Global Credit Research team
Cash
Funds
APT output Assessing each individual trade and its contribution to the risk of the portfolio
25
Source: Invesco Perpetual as at 31 August 2014. Sum of representative idea sizes: 358.0%. Definitions: Independent risk: The risk of the idea in isolation. Risk impact: The change in the portfolio’s risk as a result of adding the idea to the portfolio. Marginal risk: The attribution of the overall portfolio volatility to each idea. For illustrative purposes only. This information relates to the portfolio based on market conditions as at 31 August 2014, subject to change. *Residual FX refers to the risk arising from unhedged currency exposure rather than an individual investment idea. 1Global equity represented by MSCI World Index.
% of global equity1
Portfolio volatility 4.31 27.5% Fund value £496,524,414 Sum of independent risk 18.88 120.2% 99% 1-month VaR £14,399,208 Equity beta -0.07
Idea Independent
risk Risk
impact Marginal
risk Equity
correlation Position
Size Long Short
Credit - European Curve Flattener 0.94 -0.17 -0.04 0.52 33.2% 33.2% 33.2%
Credit - High Yield 0.75 0.19 0.21 -0.49 3.0% 11.6% 8.6%
Currency - Brazilian Real vs Chilean Peso 0.49 0.08 0.13 0.07 4.8% 4.8% 4.7%
Currency - Norwegian Krone vs UK Pound 0.67 0.10 0.15 0.32 7.7% 7.7% 7.5%
Currency - US Dollar vs Canadian Dollar 0.71 0.20 0.24 -0.66 9.8% 9.8% 9.8%
Currency - US Dollar vs Euro 0.69 0.00 0.04 -0.48 7.9% 7.9% 7.7%
Equity - European Divergence 1.58 0.63 0.93 -0.56 16.5% 16.5% 15.4%
Equity - Global 1.02 0.19 0.29 0.14 4.2% 12.3% 8.1%
Equity - Selective Asia Exposure 1.40 -0.19 -0.04 0.28 6.8% 11.8% 5.0%
Equity - Sell Puts as Long German Equity 0.33 0.02 -0.10 0.91 1.5% 1.6% 0.1%
Equity - Sell Puts as Long US Equity 0.22 -0.01 -0.08 0.96 1.4% 1.4% 0.0%
Equity - UK 0.77 0.21 0.24 0.09 5.0% 12.1% 7.1%
Equity - UK vs Switzerland 0.60 0.03 0.07 0.01 7.1% 6.5% 7.1%
Equity - US Large Cap vs Small Cap 0.52 0.04 0.10 -0.41 5.8% 5.8% 5.6%
Interest Rates - Australian Short Rates 0.52 0.14 0.19 -0.22 29.1% 29.1% 0.0%
Interest Rates - European Curve Steepener 0.58 0.10 0.14 0.06 28.2% 28.2% 11.3%
Interest Rates - Japanese Curve Flattener 0.41 -0.01 0.03 -0.16 15.4% 15.4% 13.5%
Interest Rates - Selective EM Debt 0.73 0.03 0.09 0.54 4.9% 4.9% 0.0%
Interest Rates - Sweden vs Europe 0.70 0.05 0.10 -0.14 19.0% 19.0% 18.8%
Interest Rates - UK vs France 0.66 0.22 0.26 -0.44 29.4% 29.4% 29.4%
Interest Rates - US Duration 1.17 0.51 0.65 -0.60 24.5% 24.5% 6.8%
Interest Rates - US vs Europe 0.73 0.17 0.23 -0.13 14.7% 14.7% 14.7%
Volatility - Asian Equities vs US Equities 1.07 -0.07 0.00 0.13 12.5% 12.2% 12.5%
Volatility - Australian Dollar vs US Dollar 0.52 0.09 0.14 -0.43 14.5% 14.4% 14.5%
Volatility - Chinese Equities 0.79 0.44 0.25 -0.53 15.5% 15.5% 0.0%
Volatility - UK Equity vs Rates 0.08 0.07 0.04 -0.30 1.3% 2.9% 1.7%
Cash & Residual FX 0.23 0.03 0.05 0.48 34.3% 36.6% 2.3%
APT output Risk contribution
26
Source: Invesco Perpetual as at 31 August 2014. For illustrative purposes only. This information relates to the portfolio based on market conditions as at 31 August 2014, subject to change.
Credit - European Curve Flattener Credit - High Yield
Currency - Brazilian Real vs Chilean Peso Currency - Norwegian Krone vs UK Pound
Currency - US Dollar vs Canadian Dollar Currency - US Dollar vs Euro
Equity - European Divergence Equity - Global
Equity - Selective Asia Exposure Equity - Sell Puts as Long German Equity
Equity - Sell Puts as Long US Equity Equity - UK
Equity - UK vs Switzerland Equity - US Large Cap vs Small Cap
Interest Rates - Australian Short Rates Interest Rates - European Curve Steepener
Interest Rates - Japanese Curve Flattener Interest Rates - Selective EM Debt
Interest Rates - Sweden vs Europe Interest Rates - UK vs France
Interest Rates - US Duration Interest Rates - US vs Europe
Volatility - Asian Equities vs US Equities Volatility - Australian Dollar vs US Dollar
Volatility - Chinese Equities Volatility - UK Equity vs Rates
RiskOn
PartialRiskOn
Neutral
PartialRiskOff
RiskOff
Credit
Currency
Equity
Interest Rates
Volatility
Australia
Asia
Canada
Europe
France
Germany
Global
Japan
LatAm
Norway
Sweden
Switzerland
UK
US
Review and oversight A structured approach
27
For illustrative purposes only.
Weekly Multi Asset fund management meeting Multi Asset team, dealing team To review risk positions,
implementation of investment ideas and fund performance
External research calls Multi Asset team, other investment
team representatives, external strategists
To filter the research available from investment bank and other external strategists
Monthly Multi Asset macro meeting Multi Asset team To define the central economic thesis Multi Asset ideas meeting (‘TEAM’) Multi Asset team to assess new
investment ideas and revisit existing ideas on a rolling quarterly basis
Investment team meeting Nick Mustoe, CIO & investment teams John Greenwood’s economic outlook • Monthly economic update Independent risk function To discuss stress tests and compare
risk models
Quarterly Multi Asset investment oversight meeting CIO, Head of Investment Oversight,
Heads of Desks, Multi Asset fund managers
To review additions/deletions/changes to investment ideas
Multi Asset governance meeting Independent risk and compliance
review
Annual CIO challenge Multi Asset fund managers; Nick
Mustoe, CIO; Head of Investment Oversight
To review investment ideas and portfolio risk
4 Review and Oversight
CIO Challenge The CIO Challenge covers the following areas of focus
28
1 Performance Performance against relevant peer groups and indices on a discreet and
cumulative basis. Performance dispersion.
Systems: Lipper, Morningstar, StatPro Composites
2 Assets, Flows & Liquidity Information relating to assets managed, subscriptions, redemptions, net
flow, liquidity of underlying portfolio to trade to cash.
3 Attribution/Contribution Attribution showing the relative contribution to performance. For equity
this could be measured at Country, Industry, Sector and stock level. For Fixed Income portfolios this could be measured to show contribution by credit rating, duration, issuer and issue
4 Risk Risk reward charts and total fund level. Risk reports showing tracking
error, beta, highest marginal contribution to risk by stock etc
5 Financial Attributes Analysis showing the style tilts of the portfolio to value, growth,
momentum, yield etc.
6 Active Positioning Information relating to active positions by Country, Industry, Sector,
Stock for equities. For Fixed Income active positions by credit, duration, industry and issuer.
7 Transaction Analysis Portfolio activity over the period under review including charts of
purchase/sale activity relative to stock price movements.
8 Stock Analysis Individual stock analysis often using broker research to challenge the
decisions made by a Fund Manger at a very granular level.
For illustrative purposes only.
Cash management Short-Term Investments Company (Global Series) plc “STIC Global”
Invesco Global Liquidity has US$79.7 billion in assets worldwide
There are 19 investment professionals dedicated to the short-term space
The team has an average 17 years of industry experience, and over a decade working as a team at Invesco
The cash allocation pool will be invested in the STIC Global money market fund and in other highly rated short-term debt instruments
29
Source: Invesco as at 30 June 2014.
The Global Liquidity team aims to achieve:
Preservation of principal Liquidity Yield
Credit risk is mitigated by investing in a portfolio of high quality and well diversified short-term debt instruments supported by an independent credit approval and monitoring process.
Market risk is mitigated by limiting the weighted average maturity of the Portfolio to a maximum of 60 days.
Liquidity risk is mitigated by maintaining a minimum of 30% of AUM in securities maturing within 1 week.
The fund managers continuously assess the impact of economic and market events on liquidity.
Immediate liquidity: fund is open daily and has same day settlement.
There are no restrictions on frequency of dealing, size of transaction or on retained balances.
Portfolios are priced competitively, allowing for more selective portfolio construction while seeking to deliver competitive yield.
The fund yield is comparable to the overnight interbank market rate.
Daily yield is calculated with income accrued each day.
Source: Invesco as at 14 February 2014. For illustrative purposes only.
Operating platform
30
OVERSIGHT
RESOURCING
TRADE EXECUTION
Workflow Steps Systems Process & Controls Workflow Steps Systems Process & Controls
P2 CRD
Apollo APT
Bloomberg FMC
MatLab Datastream
CRD FMC ITR
CRD P2
FMC Apollo BWISE
CRD FMC
Bloomberg SWIFT ITERO CTM
BNYM CADIS FMC
GlobeOp
FMC BNYM/InvestOne
Apollo
CRD TRAC
Miles Software BWISE StatPro
Counterparty Risk DB RCBanken
IT Applications: Peoplesoft; Plateau; Success Factors; SharePoint; Complinet Process & Controls: Annual Appraisals & Development Plans; Recruitment Process; Continual Professional Development; Regulatory Training; Resource & Succession Planning; Remuneration Policy; Conduct / Ethics Policies; Segregation of Duties
Process & Controls: Company Boards; CIO Challenge Process; Daily, Monthly & Quarterly Risk Reviews (RPLS); IP Management Group; Regular Broker Reviews; Internal Audits; Compliance Monitoring; Dealing Commission Committee; TCF Training & Scorecards; Derivatives Committee; New Instruments Committee; Departmental Procedures; Breach Reporting; Counterparty Risk Committee
Portfolio Valuation / Modelling Tool Fund Manual
/ POM / IPG Derivative Forms
Bank Loan Checklists Data automation
FM Daily /Weekly sign off Derivative Matrix
Overdraft monitoring Notification of strategy/idea
Pre Trade risk analysis IM Procedures
CRD Access Segregation Trade entry controls
IM Procedures
FM Sign Off of unquoted / illiquid securities
Quarterly Pricing Committee Fair Value policy
Fund Manager weekly & Monthly Review and Sign Off
GlobeOP v BNYM Pricing Validation
Broker Approval & Set Up Process Trade by Trade Broker Assessment
Broker Contracts / MiFID / ISDA Price ‘spot checking’
Transaction Cost Analysis Matching & Confirmation process
Execution by G.T Function IM Procedures
Pre Trade Alerts Breach Recording Pre Trade Blocks
Stock Availability checks Compliance Approvals
IVZ Restricted list
Daily Reconciliations of Cash & Stock to Custodian
/ Bank Weekly Market
Reconciliation IP / BNYM Oversight of Swing Pricing
Fund Manager Reviews and Sign off
Daily Post Trade checks against Regulatory and Investment Restrictions
Daily IRF Checks to RPLS/Derivatives Matrix
Breach Reporting to Management & Board
Strategy notifications The Multi Asset team includes the IRF in its notification emails to enable the IRF to effectively identify and analyse complex, multi-legged derivative transactions after they are executed
Investment risk meetings The Multi Asset team, the Investment Oversight team and the IRF meet at least monthly
Fund manager reviews The IRF meet with fund managers on a quarterly basis to discuss the key risks of their portfolios
Independent Risk Function (IRF) Monitoring
31
For illustrative purposes only.
In
dep
en
den
t ris
k f
un
cti
on
Derivatives oversight The IRF conduct monitoring of executed derivative transactions on an on-going basis and to provide regular reporting/escalation to the Derivatives Committee
APT risk report The IRF have access to APT and run a daily report for market risk analysis purposes so as to identify any emerging risks early on
Risk profile & limit system
The IRF, on a daily basis, monitor the risk limits for market risk, liquidity risk, the sum of the notionals of all derivatives used and counterparty risk
Daily
Monthly
Quarterly
Daily
Monthly
Quarterly
Market Risk Risk Profile & Limit System (RPLS)
32
For illustrative purposes only.
Green Yellow Amber Red
Absolute VaR <6 ≥6 ≥8 ≥20
Strategy Relative Volatility (upper bound) <120 ≥120 ≥133.33 N/A
Strategy Relative Volatility (lower bound) >80 ≥80 ≥66.67 N/A
Fund Relative Volatility <40 40≥ 50≥ N/A
The RPLS includes internal risk limits developed by the Independent Risk Function in consultation with the fund manager taking into account the fund’s investment objectives/strategy and risk profile.
In addition to Absolute VaR, the RPLS includes three further risk metrics computed by APT:
a) each derivative strategy’s (standalone, undiversified) Relative Volatility vs. the MSCI World Index (GBP) – upper bound;
b) each derivative strategy’s (standalone, undiversified) Relative Volatility vs. the MSCI World Index (GBP) – lower bound; and
c) the portfolio’s (total, diversified) Relative Volatility vs. the MSCI World Index (GBP).
Liquidity Risk Monitored by GPMR using RC Banken system
Based on outflows (historical data or scenarios) and holdings
Largest 1/5/10 days outflows at a 90 to 99.9% confidence level (using Generalized Extreme Value Distribution)
For each security, a bid-ask spread from a variety of sources: – In Normal Market Conditions – In Fire Sale Market Conditions
Outputs of the model: portfolio breakdown by liquidity level, liquidity ratios, losses given the net outflows
33
For illustrative purposes only.
Collateral Management Reducing counterparty risk
34
1. Introduction Invesco has a collateral policy to reduce counterparty risk on OTC derivatives
transactions
2. Collateral requirements
Invesco requires collateral for the following types of transactions: stock lending, reverse repurchase transactions, and OTC derivative transactions
In practice, Invesco will generally only accept cash as collateral on OTC derivative transactions
OTC derivative transactions won’t trigger automatic collateral payments and will be based on appropriate materiality levels, therefore no initial margin exchanged
Daily check on concentration and spread rules by portfolio ops; additional reporting provided to compliance and IRF
3. Collateral coverage
In relation to OTC derivatives we operate a minimum transfer amount under the Credit Support Annex (CSA) where applicable:
– The fund will obtain or pay collateral where the netted unrealised gain or loss is greater than 250,000 in the base currency of the fund
– For smaller funds, where 250,000 is significantly more than 0.5% of the NAV, a smaller amount can be agreed and specified in the CSA
Where the fund is in receipt of collateral or where collateral is re-invested for more than 20% of NAV then additional checks will need to be completed to ensure compliance with ESMA guidelines
4. Stress testing
Stress tests on the liquidity of the collateral to be implemented if collateral exceeds 30% of the fund’s NAV
Liquidity stress tests are performed in line with portfolio liquidity stress tests by GPMR
5. Re-investment of collateral
Cash collateral received as a result of transactions in OTC derivatives contracts will be held at the custodian of the fund
Any cash collateral re-invested is done so in line with the ESMA guidelines
For illustrative purposes only.
Team biographies
David Millar: FIA, Head of Multi Asset and Fund Manager
Based in Henley-on-Thames, David joined Invesco Perpetual in January 2013 and heads the Multi Asset team. After commencing his investment career with Scottish Widows in 1989, where he qualified as an actuary, David joined the Fixed Interest team at Scottish Widows Investment Partnership in 1996, becoming Head of Bond Strategy and chair of their Bond Policy Group. In 2008, he joined Standard Life Investments as Investment Director in their Multi-asset investing team. He was one of the portfolio managers within their Global Absolute Return Strategies capability and was chair of their Bond Investment Group. David holds a BSc (Hons) in Mathematical Statistics from the University of Cape Town and is a Fellow of the Institute and Faculty of Actuaries.
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Source: Invesco Perpetual as at 30 June 2014.
Richard Batty: PhD, Fund Manager
Based in Henley-on-Thames, Richard joined Invesco Perpetual in March 2013, and serves as a fund manager for the Multi Asset team. Previously, he had worked at Standard Life Investments since 2003 where he was the Global Investment Strategist in their Strategy team which is now part of Standard Life’s Multi-asset Investing team, gaining additional responsibilities for Global Tactical Asset Allocation in 2012. Prior to joining Standard Life Investments, he began his investment career at James Capel/HSBC as an equity strategist in 1995. During this part of his career, Richard became a highly-rated, senior member of its industry renowned Economics and Strategy group. In 1994, he was awarded a PhD in Financial Economics from Brunel University, where he was a part-time research assistant and taught both graduate and undergraduate students.
Dave Jubb: FIA, Fund Manager
Based in Henley-on-Thames, Dave joined the company in March 2013, and serves as a Fund Manager for the Multi Asset team. Prior to this, he worked at Standard Life Investments where he was an Investment Director, Multi Asset Investing, and was one of the fund managers of the firm’s Global Absolute Return Strategies capability. Dave joined Standard Life Group in 1982 as a computer programmer and after a period in the Actuarial Department of Standard Life Canada, he joined Standard Life Investments where he held positions as a fixed income fund manager and strategist before joining their Multi-asset Investment team in 2006. Dave graduated from St Andrews University in 1982 with a BSc (Hons) in Mathematics and is a Fellow of the Institute and Faculty of Actuaries.
Team biographies (continued)
Gwilym Satchell: PRMTM Risk Manager
Based in Henley-on-Thames, Gwilym joined the company in March 2013. Prior to this, he commenced his career in 2008 at Standard Life Investments, where he was involved in Multi-asset Investing risk management, in particular the development of scenario analysis techniques. In addition, he was responsible for managing a range of liability-driven investment (LDI) funds. Gwilym holds the PRM™ designation which is an independent validation of skills and commitment to the highest standard of professionalism, integrity, and best practices within the risk management profession. He graduated from Warwick University in 2005 with a degree in Computer Science, and gained a Masters degree at the University of Edinburgh Business School in 2008.
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Source: Invesco Perpetual as at 30 June 2014.
Georgina Taylor: Product Director
Based in Henley-on-Thames, Georgina joined our company in June 2013 and is the Product Director for the Multi Asset team. Georgina commenced her career with HSBC in 2001 as an Equity Strategist. She went on to join the Equity Strategy team at Goldman Sachs in 2004 where she wrote global equity and asset allocation research. Georgina gained asset management experience at Legal & General Investment Management, contributing to the overall asset allocation outlook for the firm and multi asset funds. Before joining Invesco Perpetual Georgina was head of Equity Strategy, EMEA, at State Street Global Markets, producing and presenting on asset allocation and equity research. Georgina holds a BSc (Hons) in Economics from the University of Bath.
Danielle Singer: Senior Client Portfolio Manager
Based in New York, Danielle joined the company in June 2014, and serves as a Senior Client Portfolio Manager for Invesco Perpetual’s Multi Asset team on their US strategy. Before joining the company, Danielle was a strategist and director of Global Investment Solutions (GIS) team at UBS, where she was involved in the review and setting of multi-asset and currency strategies, interacting with the investment team to coordinate investment strategy, and assisting clients as part of the GIS initiative. Previously, Danielle was an account manager for UBS’s Institutional Investment Management group. Prior to joining UBS in 2004, she worked on the auction rate securities desk at Deutsche Bank. Danielle earned a BA degree at Middlebury College and an MBA at the University of Chicago with concentrations in analytic finance and econometrics. She holds the Series 3, 7 and 66 registrations. Danielle is also a CFA charterholder and a member of the New York Society of Security Analysts.
Team biographies (continued)
Saul Shaul: Fund Analyst
Based in Henley-on Thames, Saul joined the company in May 2012 as an IT contractor working in front office IT and was later assigned to the implementation project working on the technical build of Invesco Perpetual’s Multi Asset investment platform. In January 2014 Saul joined the Multi Asset team as a fund analyst. Saul commenced his career in front office IT in 2006 and has worked as an IT contractor on several projects involving Fund Management and Trading systems. He graduated from The University of Portsmouth in 1998 with a degree in International Finance and Trade.
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Source: Invesco Perpetual as at 30 June 2014.
Steven Hawes: Trainee Analyst
Based in Henley-on-Thames, Steve joined the company in July 2010, and since January 2014 has served as a Trainee Analyst within the Multi Asset team. Steve joined Invesco Perpetual as a Client Services Executive, specialising in investment performance. He graduated from the Sheffield Hallam University in 2010 with a BA (Hons) in Business and Financial Services and passed the Investment Management Certificate (IMC) in January 2013.
Simon Ferguson: CFA, Senior Dealer, Alternatives and Foreign Exchange
Simon Ferguson joined Invesco in 2013 as a senior trader on the Alternatives and FX Trading desk, covering global derivative markets. Simon was previously a co-portfolio manager at Cayuga Capital, starting in July 2010 and implementing investment views through derivative instruments across the equity, fixed income, credit, FX and commodity markets. From 2002, he worked for Hermes Investment Management, running the Tactical Asset Allocation Overlay for the British Telecom pension scheme. Prior to that, Simon worked for a number of sell-side firms from 1993, including Goldman Sachs, Schroders and Julius Baer (Paris). Simon graduated from the University of Wales, Bangor, with a first-class degree in Economics. Simon also holds the Chartered Financial Analyst designation and has recently passed the Chartered Institute for Securities & Investment Level 4 Derivatives (IAD) exam.
Important information
This presentation is for Professional Clients only and is not for consumer use.
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Past performance is not a guide to future returns.
Where David Millar has expressed opinions, they are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco Perpetual investment professionals.
The Invesco Perpetual Global Targeted Returns Fund makes significant use of financial derivatives (complex instruments) which will result in the fund being leveraged and may result in large fluctuations in the value of the fund. Leverage on certain types of transactions including derivatives may impair the fund’s liquidity, cause it to liquidate positions at unfavourable times or otherwise cause the fund not to achieve its intended objective. Leverage occurs when the economic exposure created by the use of derivatives is greater than the amount invested resulting in the fund being exposed to a greater loss than the initial investment.
The Invesco Perpetual Global Targeted Returns Fund may be exposed to counterparty risk should an entity with which the fund does business become insolvent resulting in financial loss. This counterparty risk is reduced by the Manager, through the use of collateral management.
The securities that the Invesco Perpetual Global Targeted Returns Fund invests in may not always make interest and other payments nor is the solvency of the issuers guaranteed. Market conditions, such as a decrease in market liquidity, may mean that it is not easy to buy or sell securities. These risks increase where the fund invests in high yield or lower credit quality bonds and where we use derivatives.
For more information on our funds, please refer to the most up to date relevant fund and share class-specific Key Investor Information Documents and the Supplementary Information Document. This information is available using the contact details shown.
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Invesco Perpetual is a business name of Invesco Fund Managers Limited. Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority.