new oak creating an effective risk modeling framework (pensions risk management)
DESCRIPTION
Liability Driven InvestingTRANSCRIPT
For more information please contact: Ron D’Vari, CEO/Co-Founder(212) [email protected]
Or visit us on the web at:www.newoakcapital.com/solutions
Liability Driven Investing (“LDI”)
31 October 2011
Effective Risk and Asset Modeling Requirements
Various Approaches to Managing to Liabilities
Dodd-Frank
LDI Financial Technology and Infrastructure Needs
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
2TABLE OF CONTENTS
I|Various Approaches to Managing to Liability Benchmarks
I I|Liability Driven Investi ng and Alpha Strategies
I I I|Relatively New Alpha Strategies
IV|An Example of a Scalable Strategy: Quantitative Global Equity
V|Dodd-Frank and Its Impact on LDI
VI|LDI - Solutions and Infrastructure Needs
Appendix I|OpenRisk M
Appendix II|Investment Support Services
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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Asset Liability Management Approach Various Styles
Basic cash-flow matched, key rate duration matched to full liability-driven investment with sophisticated asset allocation for active management of surplus
Surplus Optimization Using alternative, real and uncorrelated assets and styles Unique long dated assets: Life settlements, Structured settlements Real Assets: Real estate, Commodities Dollar Neutral Strategies: Long/Short global equities, Long/Short ETF Unique liquidity management: Short High Yield (“SHYLD”) Strategies (REO Finance, Supply Chain Finance,
Asset Based Finance)
Customized Solutions Customized style and benchmark construction consistent to funding status and institutional profile Separate accounts or commingled funds Broad array of fixed income, equity, and alternative asset types and strategies including esoterics
Liquid Fixed Income: All liquid fixed income (Short Duration, Core, Core+, Long Duration) Illiquid Fixed Income: Loans , structured products, specialty finance Equities: Long/Short, Event Driven, International Quant Equities, ETFs, High Frequency, Private Equities Real Investing: Real Estate, Land, Commodities Multi-Strat Macro: Free-to-roam
Ongoing Risk Management and Reporting Ongoing in-depth risk assessment, valuation, performance monitoring Daily benchmark variance analysis and marked-to-market Full cash flow scenario analysis Periodic benchmark performance attribution
Comprehensive approach can meet complex institutional, product lines, and regulatory requirements
CREATING AN EFFECTIVE RISK MODELING FRAMEWORK FOR LDI
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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I. Various Approaches to Managing to Liability Benchmarks
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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Role of the benchmarkWhat risk to manage?An Illustrative Case StudyTraditional liability benchmarks and choice of discounting
Static spreadDynamic spread
How do you measure the manager’s performance in A/L framework?
Impact of spread volatility on performance measurementDistortion due to static spread assumptionManager behavior and its impact on expected returns
Case for dynamic-spread liability benchmark
Role of Min-VAR Optimization in Asset/Liability ManagementKey-rate-duration matched dynamic spread benchmarksKey-rate-duration matched market-based benchmarks
CHALLENGES OF MANAGING TO LIABILITY BENCHMARKS
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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DefinitionsThe following risks measure variability of:Absolute Return Risk = Std. Dev. (Portfolio Return)Relative Risk = Std. Dev. (Portfolio Return - Benchmark Return)Relative-to-Liability Risk = Std. Dev. (Portfolio Return - Liability Return)
Basis Risk = Std. Dev. (Benchmark Return - Liability Return)
How Should Risk Be Measured?Portfolio vs. Cash (Total Return Risk), Portfolio vs. Benchmark (Relative Risk), orPortfolio vs. Liability (Relative-to-Liability Risk)?
WHAT RISK(S) TO MANAGE TO?
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WHAT IS RELEVANT?
Choice of benchmark can be a critical determinant of returnsMarket-based benchmarks - Basis RiskLiability-based benchmarks - Absolute Risk
What seems to be most relevant?
The answer is “it depends!” or “it is regime dependent”Short-Run Total/Absolute (sponsor) or Relative Risk (manager)
Long-Run Relative-to-Liability Risk (sponsor)
Is there a pattern?In down-markets there is reversion to liability-based approach
Absolute returns look uglyRelative returns look horrific because liabilities outpace markets
In up-markets market-based benchmarks rule
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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RECENT EXPERIENCE
Up-market Period: 1984-2000, 2003-2007, 2009-2010Market-based strategies outperformed liability benchmarksBasis risk was profitable and led to huge pension surplusesSponsors tended to down play relative risk to liability benchmarks
Contributions to pension plans were kept at minimum
Down-Market Period: 2000- 2003, 2007-2009, 2011Liabilities have significantly outperformed portfolios and market-based benchmarks
Basis risk has materialized and has led to huge pension deficitsSponsors are re-evaluating relative risk to liability benchmarksContributions to pension plans are resuming and a must Sponsors are reneging on their liabilitities
Extension of retirement ageReducing post retirement health benefitsCutting off defined benefit (e.g. California)
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OPTIMAL ALLOCATION OF ASSETS - DIFFERENT APPROACHES
Optimal Utility Function ApproachOptimization is generally cast in absolute risk-return space
Inter-temporal risk is measured in absolute terms rather than relative to the liabilities Based on some form of efficient frontier
Market-based benchmarksChoice of benchmark is driven by risk-tolerance (utility)
Liabilities ignored for the most partLiability Immunization Approach
Optimization is cast in relative-to-liability risk-return spaceInter-temporal risk is measured relative to the liabilities
Estimation of liabilities are keyDiscounted-liabilities form the benchmark
Discounting methodology variesChoice of discounting methodology can influence results significantly
Modern portfolio management ignores risks vs. liabilities
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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OPTIMAL UTILITY FUNCTION APPROACH
Establish Efficient Frontier and Utility FunctionSelect investable asset classes and corresponding indicative market indices
Establish length of time and frequency of measurement most relevant
Identify risk tolerance or a risk-return utility function Establish Optimal Benchmark/Asset Mix
Optimize Sharpe Ratio by solving for optimal asset class on efficient frontier and risk tolerance
Actively ManageOptimize information ratio, i.e. alpha/tracking error
Risks vs Liabilities Are Ignored
Benchmark - Optimal Sharpe Ratio
Management - Optimal Information Ratio
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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TRADITIONAL LIABILITY IMMUNIZATION APPROACH
Establish Liability BenchmarkLiability Cash Flows: Establish realistic liability (RL) or participating liability (PL) cash flow stream
Discounting Methodology: Establish a discounting methodology
Curve - Zero coupon curve + some spreadTreasury, agency, or swapTail Rate - A discount rate for flows past 30 years
Spread - Sufficient spread that meets the liabilities in the long run and provide with additional risk-adjusted return
Manage Assets vs. BenchmarkAdd alpha over liability benchmark through
Actively manage key-rate duration around liability benchmark
Actively manage spread exposureDiscounting methodology affects funding status
Static spread discounting of liabilities could distort funding status significantly
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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TRACKING ERROR ATTRIBUTION IN ASSET LIABILITY
Asset and Liability PerformanceAsset = Duration/Curve Move+ Spread Moves + Credit Blow UpsLiability = Cash Flow Changes + Duration/Curve Move
Asset/Liability Return DifferencesActuarial gain or lossMismatch in duration/curve exposureSpread volatilityCredit blow ups
Management performance may be hard to isolate
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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AN EXAMPLE OF A STUDY RUN IN APRIL 2001
LiabilitiesDate: April 01 Aggressive Moderate* Conservative Moderate
Spread to Treasury (bp) 150 125 100 125Average Quality A-/BBB+ A- A A-Minimum Quality BB BB BBB- BBEffective Duration 11.4 11.6 11.8 11.6Portfolio Expected Return (IRR) 7.3% 7.1% 6.8% 7.1%Relative Expected Return 0.2% 0.0% -0.2% 0.0%Relative Volatility 2.3% 0.0% 1.2% 0.0%Absolute Volatility 8.0% 7.6% 7.1% 7.6%
Efficient Frontier Portfolio
Cash 0.0%
Equity 50%
Fixed - Core 40%
High Yield 10%
Portfoli Expected Return 10.18%Relative Expected Return 3.08%Relative Volatility 14.17%Portfolio Standard Deviation 9.34%
Immunized Portfolio
Various Allocations Considered
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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BASIC RISK/RETURN DATA
Cash
Expected Return 4.50%
Equity
Expected Return 9.0%Standard Deviation 17.5%
Correlation to Core 0.3Correlation to High Yield 0.4Correlation to Long Bond 0.15
Relative Std Dev to Liability 17.97%Economic Downturn Stress Senario -29.2%
Fixed Income
10 year Treasury Yield 5.30%
30 year Treasury Yield 5.85% Liability
10s Yield Beta to 30s Yield 1.20 Core High Yield Aggressive Moderate Conservative (Moderate)
Spread over Treasury (bp) 0.75% 3% 1.50% 1.25% 1% 1.25%Expected Return 6.05% 7.80% 7.35% 7.10% 6.85% 7.10%
Duration 4.5 4 11.44 11.63 11.82 11.63Treasury Yield Standard Deviation 0.50%
Spread Standard Deviation 0.25% 0.45% 0.40% 0.25% 0.20% 0.25%Spread Correlation to Treasury 0.40 0.50 0.2 0.4 0.4 0.4
Return Standard Deviation 2.89% 3.29% 8.01% 7.47% 7.19% 7.47%
Sharpe Ratio 0.54 1.00 0.36 0.35 0.33 0.35
Expected Relative Return to Liabilities -1.05% 0.70% 0.25% 0.00% -0.25% 0.00%Relative Return Standard Deviation 6.64% 6.81% 2.29% 0.00% 1.18% 0.00%
Information Ratio -0.16 0.10 0.11 n.a -0.21 n.a
Economic Downturn Stress Senario
Equity Return -29%Fixed - Yield Changes
10 yr Treas Yield Change -1.00% Liability
30Yr Treas Yield Change -0.75% Core High Yield Aggressive Moderate Conservative Moderate
Spread Change 0.25% 0% 0.35% 0.25% 0% 0.25%
Fixed - Returns 9.43% 10.20% 11.92% 12.91% 13.35% 12.91%
Long Duration
Long Duration
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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COMPARISON OF DIFFERENT STRATEGIES
Initially 15% Overfunded ExampleImmunized
Market Based Approach
Aggressive Immunized & Tail+Surplus in Equity
(Future Overlay)
Aggressive Immunized & Surplus in Equity (Future Overlay)
Aggressive Immunized + Surplus in Equity
(No Future Overlay)
Portfolio Weights - % Liabilities
Cash 0.0% -25.0% -15.0% 0.0%Equity 58% 25.0% 15.0% 15.0%
Fixed - Core 46% 0.0% 0.0% 0.0%High Yield 12% 0.0% 0.0% 0.0%
Long Duration 0.0% 0.0% 0.0% 0.0%Aggressive 0.0% 115.0% 115.0% 100.0%
Moderate 0.0% 0.0% 0.0% 0.0%Conservative 0.0% 0.0% 0.0% 0.0%
Total - % Liabilities 115.0% 115.0% 115.0% 115.0%
Long Term ExpectationsLiability Expected Return 7.10% 7.10% 7.10% 7.10%
Portfoli Expected Return - % Liabilities 10.18% 9.58% 9.13% 8.70%Relative Expected Return - % Liabilities 3.08% 2.48% 2.03% 1.60%
Relative Volatility 14.17% 8.31% 8.29% 8.28%Relative Information Ratio 0.22 0.30 0.24 0.19Sharpe Ratio 0.47 0.41 0.40 0.40
Economic Downturn ScenarioPortfolio 1-Yr Return - % Liabilities -11.30% 5.28% 8.65% 7.54%Liability 1-Yr Return - % Liabilities 12.91% 12.91% 12.91% 12.91%
Relative 1-Yr Return - % Liabilities -24.21% -7.63% -4.26% -5.37%
Ending Surplus (Deficit) - % Liabilities -9.21% 7.37% 10.74% 9.63%
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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RESULTS SUMMARY
Optimal Sharpe ratio allocation, when viewed from relative stand point, is
Highly risky in economic downturn scenarioNot highest information ratio
Variations of immunized strategy can lead to Superior relative risk profileModest give up in expected returnMuch lower exposure to economic downturn scenario
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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DISTORTION DUE TO STATIC-SPREAD DISCOUNTING IN VOLATILE SPREAD MARKETS
Introduces Funding status mismeasurementMeasurement tracking error
Makes it harder to distinguish impact ofCredit calls/mistakesCurve bets/mismanagement
Leads to sub-optimal spread allocationTracking error risk leads to risk avoidanceManagers may under invest in spread products and miss opportunities to earn higher yields
Static spread discount rates distorts funding status and leads to sub-optimal sector allocation
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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Monthly Spread History - Jan 1989 to Jan 2003Source: Salomon Yield Book and State Street Research
CASE FOR DYNAMIC-SPREAD LIABILITY BENCHMARKS -HISTORICAL SPREAD VOLATILITIES
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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TRADITIONAL ALTERNATIVES TO STATIC SPREAD DISCOUNTING
Two AlternativesMarket-based Spread
Examples include: Single-A long corporatesSwap spreadHigh-grade corporate option-adjusted spread
Portfolio SpreadSome use duration-weighted option adjusted spread of the portfolio
Both Alternatives May Not Be OptimalMarket and portfolio asset mix may not be necessarily optimal from absolute volatility standpoint
Traditional alternatives to static spread discounting are not necessarily optimal
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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OPTIMAL RISK-CONSTRAINED DYNAMIC SPREAD METHODOLOGY
BenefitsMinimizes tracking error and other forms of risk such as VAR vs. static-spread liability benchmark
Based on an optimal allocation among spread sectors across all maturities
Downside risk constraints can be used to control allocation of risk
It is equivalent to highest Sharpe ratio portfolio in absolute space
Optimal Dynamic-Spread methodology leads to benchmarks with minimum variance w.r.t. static-spread liabilities
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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OPTIMAL RISK-CONSTRAINED DYNAMIC SPREAD METHODOLOGY - BASIC STEPS
Step 1: Target Return Over Treasury– Establish required long term spread to meet long term
liabilities– Add a target strategic added value
Step 2: Define Investible Fixed Income Universe – Treasuries, Agencies, ABS, CMBS, AAA-AA Corporates, A
Corporates, BBB Corporates, BB Corporates, Mortgage Pass-Throughs
Step 3: Collect appropriate historical volatility of option-adjusted spreads (OAS) for all sectors
Step 4: Define Allocation Constraints
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Step 5: Perform Risk Constrained Optimization– Objective: Min VAR (or Single Downside Risk)– Constraints:
• Duration Weighted OAS = Target Return Over Treasury• Other constraints such as
Duration Spread < x1
Spread Product % < x2
ABS and CMBS % < x3
High Grade Corporates <x4
High Yield % <x5
Etc.
Step 6: Mark-to-Market Duration Weighted Spread Periodically
• Keep sector weights constant • DWLOAS = Duration-Contribution Weighted Liability OAS
OPTIMAL RISK-CONSTRAINED DYNAMIC SPREAD METHODOLOGY - BASIC STEPS
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Dynamic Spread Liability Return For Each Period– DSLV1 = Cash flows discounted at Treasury+ beginning DWLOAS1– DSLV2 = Cash flows discounted at Treasury+ ending DWLOAS2– Return Liability = DSLV2/DSLV1 - 1– Note: Process has to be unitized to each cash flow disbursement
Review Funding Status and Surplus/Deficit Status – Portfolio - DSLV– Required return over treasuries– Appropriateness of VAR
ONGOING EVALUATION OF DYNAMIC-SPREAD LIABILITY BENCHMARK
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HISTORICAL SPREAD SUMMARY
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OPTIMIZATION FRAMEWORK
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RISK OPTIMIZATION RESULTS
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Duration Weighted Liability OAS (DWLOAS) does not reflect downgraded issues leaving the benchmark each month!
This can lead to significant over-statement of liability benchmark returns
Solution: Key-rate-matched Market Based Benchmarks
ISSUES NOT CAPTURED BY DYNAMIC-SPREAD LIABILITY BENCHMARK
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KEY-RATE-MATCHED MARKET-BASED BENCHMARKS
ni
i 1ii MktSec *W Benchmark Blended
Definitions– Sum of Square of Key Rate Errors = Sum (BB_Kduri minus Liab_KDuri)^2– BB_KDuri = Blended Benchmark Key-Rate Duration I– Liab_KDuri = Static Spread Liability Key-Rate Duration I
Solve for Wi’s– Minimize Sum of Key Rate Errors Squared – Subject to chosen constraints
Revisit optimization periodically– Key-rate drift– Funding level– Risk tolerance
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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KEY-RATE-MATCHED MARKET-BASED BENCHMARKS
• Marking-to-Market Liabilities– Discount liability cash flows at Treasury + Duration-Weighted OAS of the Benchmark
• Benchmark Return = RB = Σ { Wi * Ret Secti }• Benefits
– Better Reflects Market Conditions – Less subject to market spread volatility
– Clear Mandate - Managers are more accustomed to managing portfolios against market-based benchmarks
– Transparent – More transparency of manager’s active management added value
– More Observable – Can be independently measured
PROPRIETARY AND CONFIDENTIAL©2011 NewOak Capital LLC. All rights reserved.
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SUMMARY
Optimal portfolios in absolute space can lead to significant risk vs. liabilities
Static-spread liabilities can introduce significant mismeasurement of funding status and distort active management
Dynamic-Spread Liability Benchmarks improve funding distortions but introduces credit migration and performance measurement ambiguities
Key-Rate-Matched Market-Based Benchmarks mitigate many issues related to funding status and performance measurement
Should lead to clearer definition of risk and more optimal active management in volatile markets
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II. Liability Driven Investing
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Level I: Comprehensive portfolio strategy and capability analysis Asset-Liability AssessmentVarious Fund Due Diligence
management and operational evaluation risk measures, scenario analysis, drawdown, performance analysis and attribution
Level II: Liability-Driven InvestingAsset and strategy allocationPortfolio construction & optimization
Level III: Ongoing asset management and evaluation of emerging asset classesDistinguished by thoughtful and in-depth ongoing risk assessment, valuation, performance
monitoring and attribution for broad array of fixed income, equity, and alternative asset types and strategies including esoterics
Customized Strategies:
Fixed Income – Short duration, Core, Core+, Long Duration, Immunization, Equity – Quant Equity (US, Non-US, Global), Long Only130/30, Long/ShortAlternatives - Structured Products, Asset-based Lending, Specialty Finance, Esoterics
LDI == Disciplined Approach to InvestingCREATING AN EFFECTIVE RISK MODELING FRAMEWORK FOR LDI
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Asset Management Infrastructure Tailored and Integrated Front To Back Office Solutions - Full turn-key front-to-back solutions and services Front Office: Decision support infrastructure, portfolio management workstation, up-to-date portfolio risk analytics & reporting, trade order
management and execution, valuation, asset liability management and relative value analysis tools Middle Office: Trade capture and processing, services, interface with depository and custodial services, collateral management, counterparty
management, performance attribution and benchmark comparison Back Office: Investor reporting, integration with third party administrators, performance attribution
Solution Elements Quantitative and fundamental valuation, pricing and risk analysis of:
equities, fixed income, real estate, commodities Hedge fund strategies, fund of funds Private equities Structured products Derivatives Esoterics Emerging assets
Valuation of hard -to-value assets including residential, commercial, consumer, equipment, project finance loans and structured products Cash flow forecasting, sensitivity analysis, stress testing , scenario analysis, relative hedge analysis, economic/rating agency/statutory capital Daily, weekly, monthly portfolio and security valuation and risk analytics for broad array of fixed income, equity, structured products,
derivatives, and alternative asset types
LDI ChallengesCREATING AN EFFECTIVE RISK MODELING FRAMEWORK FOR LDI
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34KEY LDI REQUIREMENT - KNOWLEDGEWARE
Core Competencies: Experienced professionals providing independent and transparent solutions
Experienced Professionals
• Team comprised of traditional and emerging assets as well as geo-political experts with deep experience in trading, portfolio and risk management
• Quantitative and fundamental skills• Deep understanding of intrinsic values• Comprehensive - asset and liability
sides
Disciplined Processes
• Transparent• Well tested• Understood throughout organization• Scalable• Focused on both assets and liabilities• Covering both liquid and illiquid assets• Complex liability structures
Advanced Technology
• Accessible throughout the entire process – allocation, portfolio management, risk management
• Open technology to provide customized analytics, data management an actionable reporting,
Market Experience, Technology and Process
Traditional and Emerging Assets
Asset Liability Risk Management
Evaluation, Investing,
and Trading
Integrated Infrastructure
Analysis
Reporting
Decision
Making
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Knowledge-Driven Advice and
Services
Integrated
DisciplinedTransparent
Scalable
EnablersKEY LDI REQUIREMENT -KNOWLEDGEWARE
Management
Experience
Infrastructure
ScalableDisciplined ProcessesCustomizable SolutionsEfficient
Integrated Technology,Granular Data, Open Analytics Platform, Flexible ReportingProcess and Workflow
Seasoned Senior Management with Deep Operating and Team of Cross Functional Expertise
Asset Management, Risk Management, Solutions, Knowledge-Driven Support Services
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III. Relatively New Alpha Strategies
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37EXAMPLES OF RELATIVELY NEW ALPHA STRATEGIES
Emerging Sectors (New Media , Renewable)
Equity - High Frequency, Global Quant Equity
Merchant Banking
Distressed and/or Illiquid Fixed Income
Distressed Real Estate
Specialty Finance
Esoterics
Frontier Investing
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Market-Based Fixed Income Short-Duration, Core, Core+, Long Duration, High Yield, Emerging Markets, Real Portfolios
Global Quant Equities Long only, Long/Short, 130/30 US-only, Non-Us, or Global for small, medium, large and all cap
Hedge Funds and Fund of Funds Myriad of strategies
PRIVATE EQUITY Renewable
New Media
Cloud-computing
Merchant banking
ALPHA STRATEGIES AND STYLES
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Active Trading High Quality; High Yield; Leveraged Loan; Emerging Markets
Distressed Debt and Real Estate Structured Products Residential: REO Bridge Finance, Nonperforming Loans; REO Equity CRE Recapitalization Consumer Finance
Specialty Finance Asset-based Finance Supply Chain Finance Insurance Linked: Premium finance, life settlement, longevity swaps Esoterics: Structured settlement, Intellectual Property, Litigation
Real Estates Debt, Equity, Distressed Operating Companies and REITS Core, Value Add, Opportunistic
Broad Based Asset Expertise Is Utilized Through Internal and External Resources
ALPHA FIXED-INCOME AND REAL ESTATE STRATEGIES
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StructuredCredit Expertise and Tools
Residential Real Estate
Commercial Real Estate
Consumer Credit
Leveraged Finance
Specialty Finance
Exotics
Credit crisis has created unique opportunities within structured credit universe
EMERGING STRATEGIES: MANAGING COMPLEX PRODUCTS FROM LOANS TO SECURITIES
Spectrum of issues within structured credit leads to highly attractive and scalable skill-based asset management opportunities
Structured product expertise, technology and process knowledge is highly specialized and leads to significant operational leverage
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IV. An Example of a Scalable Strategy: Quantitative Global Equity
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Well-defined investment philosophy and well disciplined process.
We term our Philosophy Fundamental Objective
We believe human behavioral biases drive many existing market inefficiencies
We use both quantitative and qualitative research methods to exploit these inefficiencies
Our Philosophy’s practical and analytical process dominates “emotionally driven” approaches
Our Process manages multi-dimensional risks by using rigorous risk controls
Fundamental Quantitative Practical
GLOBAL QUANTITATIVE EQUITY Example of Equity Investment Philosophy
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We have vast expertise in equity valuation techniques across equity asset classes. Our team have outperformed their benchmarks in long only, long short, and market neutral strategies. We have experience in both public and private equity analysis throughout the world and across company size.
Factor Analysis
Valuation
Long/Short Relative Value
Proprietary Nonlinear Transaction Cost Analysis
Portfolio Optimization and Trading
Includes transaction cost management Risk Management
Scenario Testing Time Series
Attribution Analysis
GLOBAL QUANTITATIVE EQUITY Quant Equity Investment Experience and Approach
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We base our Investment Process upon three main concepts: Alpha Driven
High alpha stocks are purchased and held – except when alpha data is suspect
Stocks become sell candidates when alpha drops below the top quintile
Risk Controlled
Stocks chosen to replace stocks sold are chosen to help control risk as well as to raise portfolio average alpha
Market, Size, Style, and Energy risk are kept close to benchmark exposure – Northfield, BARRA, Axioma are useful tools
Region, Sector, and Region/Sector weights are kept to within +/-10% of benchmark weights
Transaction Cost Sensitive
Alpha must exceed estimated transaction costs
Transaction costs are non-linear as trade sizes increase
GLOBAL QUANTITATIVE EQUITY Quant Equity Investment Process
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How attractively is the stock priced relative to industry peers?
Are analysts and investors upgrading their view of the stock?
Are insiders at the company acting as if the stock is cheap in a shareholder-friendly way?
Has the stock appreciably out/underperformed its industry peers recently?
Cause of Inefficiency Factor Group Factor Group Description
Momentum/Sentiment
Relative Value
Insider/Management
Short-Term/Technical
Imperfect Reaction to New Information
Emotional Investor Behavior
Separation of Ownership and Management
Impatient Trading and/or Short-term Overreaction
News AnalyticsIncomplete Information Set Does stock price reflect qualitative information?
We Believe Human Behavioral Biases are the key to Quantitative Modeling.
GLOBAL QUANTITATIVE EQUITY Quant Equity Investment Experience and Approach
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We divide the world into 90 categories by Region and Economic Sectors.
Portfolio Weights are controlled, relative to these categories, as part of a rigorous risk control process which also controls for market beta, style, and size risks.
Region 0 1 2 3 4 5 6 7 8
Sector FTSE AWI Weight United States
Europe ex UK
UK & Ireland
Australia & New Zealand
Asia Pacific Japan Canada
Middle East & Africa
Latin America
0 Oil & Gas 4.23% 1.27% 1.55% 0.18% 0.78% 0.12% 0.83% 0.71% 0.66%
1 Basic Materials 1.20% 1.38% 1.13% 0.88% 0.99% 0.61% 0.76% 0.48% 0.83%
2 Industrials 4.80% 2.45% 0.42% 0.23% 1.73% 1.64% 0.22% 0.15% 0.21%
3 Consumer Goods 4.25% 3.02% 1.05% 0.08% 1.24% 1.85% 0.05% 0.08% 0.34%
4 Health Care 4.50% 1.71% 0.74% 0.10% 0.09% 0.43% 0.00% 0.21% 0.01%
5 Consumer Services 4.93% 0.98% 0.79% 0.37% 0.53% 0.65% 0.17% 0.22% 0.26%
6 Telecommunications 1.39% 1.24% 0.59% 0.05% 0.70% 0.35% 0.11% 0.26% 0.30%
7 Utilities 1.45% 1.21% 0.35% 0.09% 0.36% 0.41% 0.03% 0.10% 0.22%
8 Financials 6.80% 4.43% 1.83% 1.48% 3.34% 1.37% 1.32% 0.63% 0.92%
9 Technology 6.75% 0.63% 0.10% 0.00% 1.43% 0.56% 0.12% 0.01% 0.00%
GLOBAL QUANTITATIVE EQUITY Quant Equity Investment Process
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We believe experience-driven insights into the data are critical to the Process.
Bad Earnings Data: Spreadsheet Manual Entry
Conditions Change: Morning Earnings Surprise
Conditions Persist: Short-Term Price Reversal Window
Complex Industry Schemes: Japanese Financials, European Industrials
Global Correlations: Oil and Financials
GLOBAL QUANTITATIVE EQUITY Quant Equity Investment Process
Good managers confirm the quantitative results, they don’t obey it.
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Our team has outperformed their benchmarks since 1996
Managed 5-star Morningstar international equity long-only fund
Responsible for $10 billion in long-only mandates
Demonstrated value-add from both long and short positions
Asset Class BenchmarkTime
PeriodStrategy Return
Benchmark Return
Period Alpha
International 130/30*
BNY ADR/FTSE
2004 to 2010 9.8% 7.1% 2.7%
Long Only International** MSCI EAFE 1996 to
2002q1 5.9% -0.9% 6.8%
US Large Cap*** S&P 500 1996 to 2010 9.4% 6.8% 2.6%
US SMid Cap*** Russell 2500 1996 to 2010 17.5% 9.3% 8.2%
* Returns are gross of fees. Note on the Benchmark and Universe: The fund Benchmark changed from the Bank of New York ADR Index to the FTSE All-World ex US Index on 1/1/2007 to reflect the expansion of the portfolio’s composition. Through November 2006, our universe consisted of the 650 most liquid ADRs and US GDRs. On December 1, 2006, our universe expanded to include 4,000 of the most liquid common equity shares on local exchanges in the global markets ex-US. Data referring to excess return over a “Benchmark” refers to the Benchmark that was in effect at the time in question.
** Long Only International performance was produced at ING/Aeltus Investment Management in mutual fund and institutional separate account vehicles including a five star Morningstar rated mutual fund.
*** Large Cap and Smid Cap performance was produced at ING/Aeltus Investment Management in mutual fund and institutional separate account vehicles from 1996 until 2004.
GLOBAL QUANTITATIVE EQUITY Quant Equity Team’s Investment Performance
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We have developed a superior International Small Cap Model:
Global SC Fund Alpha Predicted Actual
9/30/2003 Tracking Error Tracking Error
Inception 2003 14.63% 16.50% 1.88% 3.9% - 4.1% 6.0%
2004 30.42% 43.22% 12.80%
2005 22.51% 50.62% 28.11% Periodicity Hit Rates
2006 32.55% 45.15% 12.60%
2007 13.56% 23.21% 9.65% Monthly 69%
2008 -52.03% -46.02% 6.02% Quarterly 93%
2009 61.24% 69.32% 8.09% Annually 100%
Part Year - Nov 2010 14.13% 19.81% 5.67%
Annualized Since Inception 13.21% 24.90% 11.69%
Time Period September 2003 to November 2010;
GLOBAL QUANTITATIVE EQUITY Quant Equity Product Research & Development
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International v FTSE AWI ex US
Smid Cap v Russ 2500 Index
Large Cap v S&P 500 Index
Large Cap v Russ 1000 Index
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%12.5%
9.8%
8.6%7.7%
Annualized Alpha
Annualized Alpha
An additional model for the US market:
Top Decile Versus BenchmarkTime Period 2001 to 2010
GLOBAL QUANTITATIVE EQUITY Quant Equity Product Research & Development
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V. Dodd-Frank and Its Impact on LDI
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The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Act") passed in July 2010 and required several regulatory agencies including the SEC, CFTC and FDIC to propose and finalize more than 500 rules in order to give shape and structure to the sweeping reform of the financial regulatory system envisioned by the Act.
Several key regulations under Title VII of the Act related to the $600+ trillion derivatives market are being finalized in 2011
General objectives are transparency, reducing systematic risk, ensuring orderly markets OTC derivatives markets
Significant objective is to move the OTC derivatives transactions (“Swaps”) activities to the regulated exchanges with clearing through central clearing housesUse of clearinghouses “mutualize “ the counterparty risks among members hence
reduce the systematic risks Implications:
The definition of “swap” is very broadAll parties will be affected and need to assess the relevant compliance rules,
operational risks, business costs, and how it affects them. No one is exempted from record keeping, reporting, and rules of conduct
THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT
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Collateral management requirements including Counterparty risk managementLiquidity managementRisk-based margining
•Marked-to-market and Value-At-Risk•Collateral optimization
Operational•Collateral amount verification •Collateral movements mechanism and costs
Administrative•Record keeping and reporting•Rules of conduct
Hedge Fund TransparencyFund-of-fund position aggregationCollateral management validation and optimizationHard-to-value assets and investor reporting
Challenges and Requirements Ahead for OTC Derivatives Activities
Fund Managers Under Dodd-Frank
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Types of Transactions Currently involved in (“on the book”) Contemplated transactions
Entity Classification Highly Regulated – depends on level of activity as well as purpose
•SD – Swap Dealer• MSP – Major Swap Participants
Eligible Financial Participants –ECP•Can do bilateral transactions•Must have a level of sophistication and financial means
Less Regulated - Commercial End Users (“CEU”)• Must be using it for hedging or mitigate risk•Cannot be a financial entity!
Execution and Clearing Requirements Not all swap types require centralized execution and clearing but most do
Methodical Steps to TakeFund Managers Under Dodd-Frank
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CREDIT RISK EXPOSURES• SECURITIES LENDING• PORTFOLIO LOANS• OTC DERIVATIVES
• IF NOT ALREADY WILL BE 100% SUBJECT TO ISDA, CSA, AND COLLATERAL POSTINGCOLLATERAL MANAGEMENT MITIGATES COUNTERPARTY CREDIT RISK BUT INTRODUCES
OPERATIONAL RISKSCREDIT RISK MANAGEMENT LEADS TO COLLATERAL MANATEMENT
OPERATIONAL ISSUESTIMELY FORECAST OF VARIATION MARGINS
• DERIVATIVES AND COMPLEX SECURITIES PRICINGSENARIO ANALYSIS VALUATION AGENT AND DISPUTE MECHANISIM
COMPLEX DOCUMENTAIONOPTIMIZATIONTIMELY EXECUTION
REHYPOTHECATION CAN LEAD TO CASCADING EFFECTS
Integral part of risk and liquidity managementCOLLATERAL MANAGEMENT FOR INSTITUTIONAL ASSET MANAGERS
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Banks
Insurers , REITS, Specialty Finance
Asset Managers/Treasurers
Pension & Endowments
• Global and Domestic Banking Institutions
• Life and P&C Insurance Companies, Reinsurers, REITS, Specialty Finance
• Pension Funds, Foundations and Endowments
• Traditional and Alternative Asset Managers, Treasurers
Governmental Agencies • Central Banks, Sovereign Funds, Supra-nationals, Government Agencies
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VI. LDI - Solutions and Infrastructure Needs
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INTEGRATED APPROACH TO ASSET
MANAGEMENT SERVICES
Front Office: Portfolio Workstation,
Risk & Trade Management, ALM
Middle Office: Trade Processing, Clearing, Valuation, Collateral
Management
Back Office: Reporting,
Performance Measurement,
Attribution
Liquidity, Credit & Asset Liability Management
Counterparty and Collateral
Management
Regulatory Reporting & Compliance
LIABILITY DRIVEN INVESTING
GLOBAL FIXED INCOME
FIXED INCOME DERVIATIVES
STRUCTURED: RMBS, CMBS,
ABS, CDO, CLO, CSO, SIVS
WHOLE LOANS REAL ESTATE ALTERNATIVES
GLOBAL EQUITIES
EQUITIES DERIVATIVES
PRIVATE EQUITIES
DATA WAREHOUSE ADVISORY SOLUTIONS SERVICES
LDI REQUIRES AN NTEGRATED APPROACH TO RISK, ASSET AND FINANCIAL MANAGEMENT
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Asset/Risk Management
Well-Defined Strategies: Fixed, Equities, Asset-Based Lending, Specialty Finance
Front Office: Portfolio, Risk & Trade Management
Middle Office: Trade Processing, Clearing, Valuation,
Collateral Management
Back Office: Reporting,
Performance Measurement,
Attribution
Credit Risk & Asset Liability Management
Regulatory Reporting & Compliance
Counterparty and Collateral
Management
INFRASTRUCUTURE REQUIREMENTS RAPIDLY RISING WITH THE SIZE OF OPPORTUNITIESASSET MANAGEMENT/RISK MANAGEMENT ENVIRONMENT
The environment is ideal penetrating and capturing market share in regimented global fixed income, equity, and alternative asset management
• The mounting importance of asset liability and credit management
• The growing demand for global fixed income and diversified equity products
• Increase in fixed income-focused financial institutions
• Global quant equity opportunities• Global growth of multi-family offices• Ever increasing demand for articulated and
transparent asset management by pension plans, private wealth and financial institutions
• The mounting complex regulatory risk management and reporting requirements
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Portfolio Mgmt
Alpha Models
Risk MgmtCredit
Analytics
DerivativesComplexSecurities & Loans
EquitiesFixed Income
Web-based Reporting
Customizable Risk Models
Rapid Deployment
Multi-Entity
High Availability
Hosted Services, Cloud Computing
Must be designed to leverage the best technology and expertise to provide best-in-class solutions to optimize the following key concerns: Transparent and comprehensive Embracing modern technologies to overcome legacy platform issues Incorporate valuation, attribution, scenario analysis & reporting
TRANSPARENT, COMPREHENSIVE, AND SCALABLE
Performance Scalability
Customization Usability
TM
ANALYTICAL PLATFORMS NEEDS
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Sophisticated Analytical & Execution Platform Needed
Credit intensive analysis is needed for most instruments to uncover risks not apparent from traditional analysis. Forward-looking views and scenarios to
Multivariate stresses needed to be applied around forecasts to capture alternate future states of the world Interest rates, currencies, defaults,
LOANS/CREDITS
COMPLEX SECURITIES
GRANULARITY
COMPLEXITY
DERIVATIVES ILLIQUID LIQUID CONTINGENT CLAIMS
RMBS CMBS Consumer ABS HY & IG Bonds Esoteric Assets
Residential Mortgage
Commercial Mortgage
Consumer / StudentLoans
CorporateCredit Esoterics Contracts
SECURITIES AND DERIVATIVES
Comprehensive state-of-the-art large scale analytical systems needed for valuation and risk management of complex securities and portfolios .
WORLD OF COMPLEXITY
Cross-Asset Class Capability Is Required for A Comprehensive Counterparty and Collateral Management System
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Fixed Income
Portfolio Management
Risk Management
Complex Securities &
Esoterics
Stratus - Loan Collateral
Management
Equity
Alpha & Risk Models
Portfolio Management
Electronic Trading
Derivatives
Risk & Valuation
Collateral Management
Next Generation Portfolio and Risk Management PlatformOPEN RISK SOLUTIONS
TM
Integrated platform – open, flexible, connecting risk management, portfolio management, trading, collateral management, financial management and reporting
Multi-asset class covering, liquid, illiquid, complex and derivatives, US and international Proprietary plus open-interface credit and factor models supporting risk management, alpha generation,
and asset allocation
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NewOak OpenRisk provides a comprehensive capabilities to managing multi-asset-class portfolios Leveraging NewOak’s superior credit analytics and technology, NewOak can provide cost effective services across a variety of
important functions:
With a customizable service model, NewOak can multiple deployment options: Data Services Hosted “Software-as-a-Service” In-House installation and management.
Next Generation Valuation & Risk Services
•See-through valuation, loss, cash flow analysis of structured products – RMBS, CMBS, CDO. CLO, EsotericsDeep-Dive Credit Analysis
•Risk reporting across first and second order sensitivitiesRisk Reporting
•Projected interest and principal (maturity, calls and prepayments) cash flows provided for static (fixed-rate) and user defined dynamic scenarios (customizable shocks)Cash Flow Forecasting
•The impact of changes in fixed rate and spread to benchmark upon projected cash flowsReinvestment Rate Analysis
•Portfolio and asset class sensitivities to changes in realized and projected inflation ratesInflation Risk
•Projected return and forward-looking risk profile from user-defined interest rate shocksHorizon Analysis
•Aggregate analytics provided at sector, subsector and cusip levelsDrilldown Capability
NEWOAK SOLUTIONS OpenRisk™ - OpenFixed
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COUNTERPARTY RISK MANAGEMENT
COUNTERPARTY CREDIT ANALYSIS
CREDIT EXPOSURESDERIVATIVES & LOANS
ISDA & CSA
VALUATION & Monitoring
OPTIMIZATION
TIMELY EXECUTION
Opportunities and Perils In Counterparty and Collateral ManagementCOUNTERPARTY RISK MANAGEMENT
Spectrum of complex documentation interpretation, computation, valuation, optimization, and execution leads to challenges and opportunities for state-of-the-art collateral management systems and operations
Legacy
TodayFuture
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Optimization/Netting
Credit
Valuation/Sensitivities
Documentation
Cross Collateral Capability
Integrate Data from multiple sources and formats
Rules-based workflow engine
Customizable Reporting and Stratification of Portfolio
Real-time reporting and status update
Web-based for global distribution
Collateral Management Capabilities Is Becoming A RequirementFLEXIBLE SYSTEM APPROACH TO REDUCE OPERATIONAL RISK
Systems to consolidate data across multiple platforms, sources and formats into a single integrated framework.
Collateral Management &
ReportingExecute
Analyze
Collect
CSA, Master ISDA, Scripting
Method Agent
Position Tracking
SimulationLiquidity
Management Monitoring Dispute Resolution
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Web-based Reporting
Customizable Risk Models
Rapid Deployment
Multi-Entity
High Availability
Hosted Services, Grid Computing
Analytical and Execution PlatformTRANSPARENT VALUATION AND EXECUTION SYSTEM
Comprehensive Platform:
OpenRisk™ has been designed to leverage the latest technologies and NewOak’s expertise to provide best-in-class solutions. In addition, OpenRisk™ helps optimize the following key concerns:
Transparent and comprehensive
Embrace modern technologies to overcome legacy platform issues
Asset Class Contribution
Expected Liabilities
Net Cash Flows
0100000002000000030000000400000005000000060000000
Quarter
0100000020000003000000400000050000006000000
Quarter
-100000000
100000002000000030000000400000005000000060000000
Quarter
Performance Scalability
Customization Usability
TM
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Extensive capabilities across all aspects of securities finance:
Collateral Management ServicesSOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE
Repo
•MRA/GMRA: Repurchase Agreements
•Core and Complex Fixed Income
ISDA
•Initial Margin
•Margin Verification
Exchange
•FCM•DCM
Central Clearin
g
•Verification and Checking of Central Clearing
•Cross Margining and Risk Based Margining
MRA – Master Repo Agreement ; GMRA – Global MRA
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Collateral Management Services: StratusSOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE
• Daily Mark to Market• Collateral Validation
• Domestic and International• Complex Securities• Corporate Sovereigns
• Multi-Counterparty• Tri Party
Repurchase Agreements: MRA and GMRA Modeling
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Collateral Management Services: StratusSOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE
• Daily Mark to Market• Collateral Validation
• Initial Margin, Thresholds, Minimum Amounts
• Risk-Based Margining• Cross Margining
ISDA: Credit Support Annex Modeling
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DOCUMENTATION• ISDA and CSA
• SUITABILITY• ENFORCEABILITY• OPERATIONALLY IMPLEMENATABILITY
• MARK-TO-MARKET RULES• FREQUENCY INTERVALS• METHODOLOGY• VALUATION AGENT• NETTING RULES• NOTICE RULES
• COLLATERAL POSTING RULES• ELIGIBLE COLLATERAL• HAIR CUTS• HYPOTHECATION AND REHYPOTHECATION RULES
• DISPUTE MECHANISM • LIQUIDATION PROCEDURES
COLLATERAL MANAGEMENT MITIGATES COUNTERPARTY CREDIT RISK BUT INTRODUCES EFFECTS
COLLATERAL MANAGEMENT - OVERVIEW
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Call & return amounts Credit Support Document (CSD) and Annex (CSA)Marked-to-Markets (MTM)Independent AmountsMinimum Transfer AmountsNetting RulesThreshold AmountsValuation Percentage or (“Haircut”)
GLOSSARY OF BASIC TERMS IN AN ISDA
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INTEGRATED APPROACH
Front Office: Portfolio, Risk & Trade Management
Middle Office: Trade Processing, Clearing, Valuation, Collateral
Management
Back Office: Reporting,
Performance Measurement,
Attribution
Liquidity, Credit & Asset Liability Management
Counterparty and Collateral
Management
Regulatory Reporting & Compliance
NEED FOR AN INTEGRATED FRONT, MIDDLE, AND BACK OFFICE SOLUTIONSOPERATIONAL MAZE – COLLATERAL AND COUNTERPARTY MANAGEMENT
THE CREDIT CRISIS AND FINANCIAL REFORM HAS CREATED A MOUNTING DEMAND TO ADDRESS THE COLLATERAL MANAGEMENT ISSUES AS AN INTEGRAL PART OF THE OVERALL RISK MANAGEMENT, TRADING, AND COUNTERPARTY MANAGEMENT
Legacy
TodayFuture
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Central Clearing and Industry Future ChallengesSOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE
Need to Provide transparency and independence for clients• Hybrid Role for Custodian (Initial margin in custodial account)
Risk-Based Margining• Validation of models and methodology• Reconciliation
Collateral Optimization• Economics and Risk• Costs and opportunities within managerial collateral
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:
Collateral Management Services: StratusSOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE
Technology Driven Solutions:• Customized Implementation: Multi: Entity, User,
Jurisdiction• Credit Support Annex Modeling
Independent Valuation and Risk of Securities and Derivatives:• Validation and Control• Reconciliation
Risk-Based Margining:• Support for multiple methodologies and calculations• No Black Box
NewOak’s Integrated Approach to Collateral Management
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Process: Reconciliation of trades and pricing. Calculation of amounts relative to specific CSA terms. Validation of pricing and risk analytics. Senior Collateral Management Expertise.
Capture all necessary components for initial and variation margin. Calculation of Collateral Movement, Reason and Amount.
Collateral Management Services: StratusSOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE
Management Margin Calculation Report
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Collateral Management Services: StratusSOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE
Margin Management Calculation Report:
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Collateral Management Services: StratusSOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE
Management Risk-Based Margin Calculation Report (VaR Margin):
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Hedge fund Transparency Services SOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE
State of the industry:
FT April 2011: “Assets under management in the global hedge fund industry have soared to an all-time peak, surpassing the pre-crisis high thanks to the strongest investor inflows in years.The world’s hedge funds at present manage $2,002bn of client funds, according to Hedge Fund Research, the industry’s leading data provider.
That comfortably exceeds the $1,930bn peak of June 2008, just months before the collapse of Lehman Brothers triggered big losses and huge investor redemptions in the industry’s worst-ever crisis.
At its nadir, the hedge fund industry’s assets were just $1,330bn in the first quarter of 2009.
The latest figures show growth over the past two years has been almost as rapid as at the height of the credit boom. Between end-2005 and end-2007, total assets managed rose by $763bn, compared with $689bn from trough to peak over the past 24 months.”
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Hedge fund Transparency ServicesSOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE
State of the industry:
The industry continues to be dominated by a handful of big names. One 20th of the hedge fund groups control two-thirds of the industry’s total assets, according to HFR data.Stung by concerns over funds’ operational sophistication in the wake of the Madoff affair, investors have been wary of allocating to lesser-known names, marketers say.
Investor have changed their approach to their asset class, demanding more in depth transparency as well as more frequently.
The biggest investors have also moved assets to separately managed accounts but that is not economically viable for most.
However transparency requires additional process and investment to make it useful.
There is a pronounced need for outsourced assistance.
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Hedge fund Transparency ServicesSOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE
State of the industry:
According to a Boston Consulting Group Analysis, Annual spend on market risk is large; estimated at $7.3B worldwide.1
Largest spend within HF and asset manager segments; North America and Europe are critical markets.
ASP offering represents significant cost savings for HF, FoHF and asset managers.• Annual operating spend of $2.3B (32%) and one time, up-front costs associated
with implementing risk software of $5B (68%).
Important criteria across segments are customization, flexibility, integration; Data management appears to be a key competitive differentiator.
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Hedge fund Transparency ServicesSOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE
State of the industry:
The Competitive Landscape has changed dramatically
The current market opportunity: In the aftermath of the credit crisis, intuitional investors have gone back into hedge
funds after massive redemptions left the hedge fund market well below current levels.
Investors are seeking a different investment style with their hedge fund investments, greater and more frequent transparency and more focus on control of their investment and due diligence.
However, most institutional investors lack the infrastructure and resources to both accumulate and then reintegrate the position level information from the managers back into their investment process.
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Hedge fund Transparency Services SOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE
State of the industry:
This has led them to engage third party providers to assist with this process. However there has been some unsettling developments within this niche market of providing transparency services to institutional investors. Leading into the crisis, there were 3 main competitors in the hedge fund transparency space:
• RiskMetrics: nearly 50% market share• MeasuRisk: nearly 30% market share• State Street/IFS: Nearly 20% market share
These 3 had dedicated business to leverage their analytical capabilities to acquire the manager position and provide back various risk measures and other information describing exposures and volatility levels.
While the 3 had very different strengths and weak nesses, their collective business facilitated information flows to investors from managers in an otherwise opaque and tightly controlled market.
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Hedge fund Transparency ServicesSOLUTIONS FOR THE CHANGING CAPITAL MARKETS LANDSCAPE
State of the industry:
Today, the landscape has changed materially: RiskMetics and MeasuRisk were both sold to MSCI Barra. Quickly the intellectual property from MeasuRisk was folded into the RiskMetrics platform and their teams were either absorbed or disbanded.
Simultaneously there has been a legion of defections the RiskMetrics staff, across the board from executive to core technology staff. The consensus from those departing is that Barra is not the environment to pursue a career outside of equities and indices, their core business. This has led to a diminished product and service set and can only portend to what will be in the near future as more investors place increased reliance on transparency services as part of their portfolio surveillance function.
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This presentation provides certain information regarding NEWOAK CAPITAL LLC. By accepting this presentation, the recipient agrees that it will use, and it will cause its directors, officers, employees, agents, professional advisors and representatives to use, the information herein for internal purposes only and will not divulge any such information to any other person without New Oak’s prior consent.
The presentation is a general summary of NEWOAK CAPITAL LLC and its respective businesses, and does not purport to be a complete description of NEWOAK CAPITAL LLC, its respective businesses or its financial condition. This information was accurate as of the date of this presentation but views and outlooks may have changed. Neither NEWOAK CAPITAL LLC nor its representatives or affiliated make any representation or warranty as to the accuracy or completeness of this presentation, or the validity, completeness or accuracy of assumptions underlying any estimates or projections contained herein. No one assumes any duty to update this presentation or revise any of the statements contained herein, whether as a result of new information, future developments or otherwise.
Non-factual statements, including those regarding possible future events (“forward looking statements”), constitute only subjective views and/or present intentions; are not representations or warranties; and are subject to change. These statements are necessarily speculative and arbitrary in nature, and investors should expect that some or all of the assumptions underlying these statements will not materialize, or will vary significantly from actual results. These variations may be material.
There is no guarantee that views and opinions expressed in this presentation will be correct, and intentions to buy or sell particular securities investments or types of securities or investments in the future may change. The views expressed in this presentation were current as of the date of this report. Do not assume that every account managed by New Oak follows every investment strategy discussed in this presentation. Past performance is no guarantee of future results.
Do not distribute this presentation in any manner to any third party without our prior written consent. This presentation should not be considered a recommendation to buy, sell or hold a security or investment and no one should rely upon it as research or investment advice.
NOTICE
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The information in this document does not constitute an offer to sell or the solicitation of an offer to purchase any securities from any entities described herein. Any such offer will be made solely to qualified investors by means of private placement memoranda and related subscription materials. Such offer would not be registered under the U.S. Securities Act of 1933 (the “Act”), and any securities from such offer may not be offered or sold in the United States without registration under the Act or exemption thereunder.
All information herein is subject to change without notice, revision or update. NewOak Capital Markets LLC (“NewOak”) makes no representation or warranty, expressed or implied, as to the accuracy or completeness of the information contained herein, and nothing contained herein is, or shall be relied upon as, a promise or representation, whether as to the past or the future, and any such reliance shall be unreasonable.
This document is confidential and is intended solely for the information of the person to whom it has been delivered. It is not to be reproduced or distributed, in whole or in part, by any means, without the prior written consent of NewOak.
Nothing contained herein should be construed as tax, accounting or legal advice. Any statements regarding past performance are not guarantees of future results.
INVESTING IS SPECULATIVE AND INVOLVES RISK OF LOSS. YOU SHOULD REVIEW CAREFULLY ANY OFFERING MATERIALS, INCLUDING THE DESCRIPTION OF THE RISKS, FEES, EXPENSES, LIQUIDITY RESTRICTIONS AND OTHER TERMS BEFORE MAKING A DECISION TO INVEST.
FORWARD-LOOKING STATEMENTS Any estimates and projections contained herein have been prepared by NewOak are not guarantees of future performance and involve significant elements of subjective judgment and analysis that are inherently subject to uncertainties and changes in circumstances. Some of the statements in this presentation may constitute forward-looking statements, and may be identified by the use of words such as “expect,” “plan,” “anticipate,” “intend,” “believe,” “seek,” “estimate,” “will,” “could,” “should,” “potential,” “designed” and similar words or negatives of same. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements contained in this presentation involve risks and uncertainties, including but not limited to statements as to:
• general volatility of the securities markets in which NewOak invests;• changes in business strategy;• availability, terms and deployment of capital;• availability of qualified personnel;• changes in the securities industry, interest rates, the debt securities markets or the general economy;• increased rates of default and/or decreased recovery rates on investments;• changes in governmental regulations, tax rates and similar matters;• changes in generally accepted accounting principles by standard-setting bodies;• availability of targeted investment opportunities;• the degree and nature of NewOak’s competition; and• other global, political, economic, business, competitive, market and regulatory forces.
The forward-looking statements are based on the beliefs, assumptions and expectations of future performance, taking into account all relevant information currently available at NewOak. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to NewOak or are within its control. If a change occurs, the business, financial condition, liquidity and results of operations may vary materially from those expressed in the forward-looking statements.
CERTAIN ASSUMPTIONSThe expected returns set forth in this presentation are calculated based on various assumptions that NewOak believes to be reasonable under the circumstances or that have been provided by third parties NewOak deems reliable, although no warranty is made that such assumptions will prove to be correct, and other professionals may have differing assumptions. Such assumptions include, without limitation, the prepayment curve shape and interest rates. No assurance can be given that such returns can or will be achieved.
DISCLAIMER
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Appendix I. OpenRiskTM
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Fixed Income Risk Analytics
Base risk analytics to describe portfolio metrics including credit analytics.
Dynamic drilldown provides aggregate and security specific analytics
NEWOAK SOLUTIONS OpenRisk™
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Key Rate Sensitivities
Calculation of key rate duration, customizable to a client’s specific needs and reportable at the portfolio any aggregate level.
Drilldown capabilities allows users to aggregate or drill-down to user defined sector, subsector, and CUSIP levels
NEWOAK SOLUTIONS OpenRisk™
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Dynamic Cash Flow Forecasting
Ability to dynamically generate portfolio and security specific cash flows (principal, interest, matured bonds, calls, puts and structured cash flows)
Aggregate cash flows by periods User has the ability to change interest rate scenarios and periodicity assumptions driving cash flows
NEWOAK SOLUTIONS OpenRisk™
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Reinvestment of Cash Flows and Assumptions
The ability to forecast variability of future reinvestment cash flow streams at a fixed rate or a spread to LIBOR or other benchmark.
NEWOAK SOLUTIONS OpenRisk™
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Credit Analytics: RMBS
The RMBS Transition Matrix shows such statistics as % DQ30, DQ60, DQ90, FC, REO and Prepays on collateral, stratified by user-defined criteria.
Provide comprehensive performance reporting across a database of 25+Millions residential mortgage loans Users can customize their categorization by vintage, lien type, collateral type and characteristics
NEWOAK SOLUTIONS OpenRisk™
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Credit Analytics: RMBS Performance
The RMBS analytics allow users to look at both historical and projected performance, showing such statistics as % DQ30, DQ60, DQ90, FC, REO and Prepays on collateral, stratified by user-defined criteria
NEWOAK SOLUTIONS OpenRisk™
The RMBS Severity Matrix shows Loss Severity data on collateral, stratified by user-defined criteria
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OpenRisk™ Portfolio Credit SummaryNEWOAK SOLUTIONS OpenRisk™
Portfolio My Test 1.12As of Date 8/31/2010Purpose ALL_SECURITY TYPES DEFAULT ASSUMPTIONS – YIELD
Class Type CUSIP Description Coupon Maturity Original Par (#k) Current Par (#k)
NAV (#k) % NAV Price Source
TOTAL 10,961.68 6,895.10 4,710.66 100.00% 68.23
ABS Auto Loan 90327MAC2 USAA0801 A3 4.16 4/15/2012 840.98 724.29 720.98 15.31% 99.36 NOC
14312UAD9 CARX0703 A4 5.32 2/15/2013 205.00 205.00 198.96 4.22% 96.82 NOC
44920NAF1 HYAR07A A4 5.21 3/15/2014 637.00 637.00 609.71 12.94% 95.48 NOC
65475FAD7 NART08A A3 3.89 8/15/2011 496.52 438.05 437.69 9.29% 99.74 NOC
TOTAL 2,179.50 2,004.34 1,967.33 41.76% 97.95
Credit Card 161571AQ7 BOIT_1 05A7 4.55 1/15/2011 93.44 93.44 91.82 1.95% 98.06 NOC
14041NBX8 COET_1 05B1 4.9 2/15/2015 140.00 140.00 18.60 0.39% 13.07 NOC
14041NAZ4 COET_1 03C4 6 10/15/2010 200.00 200.00 15.92 0.34% 7.69 NOC
TOTAL 433.44 433.44 126.34 2.68% 28.91
HELOC 881561WU4 TMT059HG M3 4.75 8/25/2035 45.62 11.08 0.30 0.01% 2.34 NOC
126671B21 CWHE03E NOTE 1M Libor + 26 7/15/2029 358.00 19.93 13.77 0.29% 69.07 NOC
126686AB0 CWHE06H 2A1A 1M Libor + 15 11/15/2036 100.00 40.22 20.54 0.44% 51.05 NOC
126673KQ4 CWHE04L 2A 1M Libor + 28 2/15/2034 86.86 7.44 4.78 0.10% 64.22 NOC
1266715Y8 CWHE04C NOTE 1M Libor + 22 1/15/2034 100.00 9.13 6.13 0.13% 67.17 NOC
12670CAA5 CWH0700C A 1M Libor + 15 5/15/2037 100.00 44.89 24.52 0.52% 54.61 NOC
126673KP6 CWHE04L 1A 1M Libor + 28 2/15/2034 160.00 15.65 10.84 0.23% 69.26 NOC
92906AAA7 GPHE06H1 UCF_AX 1M Libor + 17 3/12/2037 100.00 24.85 17.11 0.36% 68.83 NOC
TOTAL 1,050.48 173.19 98.01 2.08% 56.54
TOTAL 3,663.43 2,610.98 2,191.68 46.53% 83.74
RMBS Home Equity 36244KAG0 GSA06HE3 M2 1M Libor + 30 5/25/2046 45.62 45.62 21.54 0.46% 47.20 NOC
12667AAC0 CWHE0612 2A2 1M Libor + 15 7/25/2036 52.94 41.09 34.34 0.73% 83.56 NOC
126670YG7 CWHE0605 2A2 1M Libor + 18 9/25/2034 821.67 463.59 391.72 8.32% 84.49 NOC
805564QR5 SAST0403 A1A 1M Libor + 34 12/25/2034 409.00 21.29 12.19 0.26% 57.25 NOC
126670EY0 CWHE0512 4A 1M Libor + 28 2/25/2036 444.00 85.78 69.71 1.48% 81.26 NOC
86359BV24 SAS05WF1 M9 1M Libor + 230 2/25/2035 45.66 14.41 1.18 0.03% 8.17 NOC
805564SW2 SAST0503 M5 1M Libor + 65 11/25/2035 388.77 388.77 190.57 4.05% 49.00 NOC
004375BX8 ACCT0403 2M7 1M Libor + 250 10/25/2034 1,888.39 447.26 363.19 7.71% 81.16 NOC
126670NJ3 CWHE05B5 M5 1M Libor + 76 11/25/2035 231.00 231.00 124.12 2.63% 53.71 NOC
126670RL4 CWHE0517 MV8 1M Libor + 225 12/25/2035 6.01 6.01 1.55 0.03% 25.83 NOC
17312GAC5 CTM07AH3 A3C 1M Libor + 26 5/25/2037 769.60 769.60 424.50 9.01% 55.15 NOC
040104RJ2 ARS06W01 M2 1M Libor + 43 3/25/2036 806.20 806.20 342.01 7.26% 42.41 NOC
04542BMG4 ABF05WF1 M9 1M Libor + 170 2/25/2034 447.37 164.12 113.05 2.40% 68.85 NOC
073879VL9 BSHE05T1 M6 1M Libor + 170 5/25/2035 37.00 16.81 2.72 0.06% 16.13 NOC
04541GTP7 ABSH05H6 M5 1M Libor + 68 7/25/2035 243.00 243.00 143.55 3.05% 59.06 NOC
073879E38 BSHE05T2 M2 1M Libor + 67 8/25/2035 643.50 530.07 275.36 5.85% 51.93 NOC
TOTAL 7,279.72 4,274.62 2,511.32 53.31% 58.73
Whole Loan 437690CH1 HMS04006 A3A 1M Libor + 55 1/25/2035 18.54 9.50 7.66 0.16% 80.61 NOC
TOTAL 18.54 9.50 7.66 0.16% 80.61
TOTAL 7,298.26 4,284.12 2,518.98 53.47% 58.78
TOTAL 10,961.68 6,895.10 4,710.66 100.00% 68.23
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OpenRisk™ Sample Reports – Forecasted Cash Flows for Single Asset Class
Forecasted Cash Flows
NEWOAK SOLUTIONS OpenRisk™
Cusip :
Scenario DM Prin Wrdn Cum Loss Life
1 1290.266235 0 4.083602905
2 1291.695068 0 4.10709095
3 1289.519043 0 4.225723267
4 1286.908936 0 4.366422653
5 1283.067749 0 4.445511818
18.70564651
CASH_RMBS_5 68.07893372 15 -0.59682333 4.742804527 30.35211945 19.33748436
CASH_RMBS_4 68.82089233 15 -0.57872921 4.538986683 29.9769249
16.63384438
CASH_RMBS_3 69.3677063 15 -0.55710852 4.407880306 29.5104847 17.58159828
CASH_RMBS_2 69.77047729 15 -0.54490805 4.302575111 28.97035789
Cum Loss Curr
CASH_RMBS_1 69.63279724 15 -0.5539692 4.356078148 29.92904663 16.44619942
SNP
Assumption Price Yield Mod Duration
Avg Life Default Curr
Orig Moodys Baa3
Orig SNP BBB
Moodys Baa3
Collateral Type SUBPRIME
Tranche Name 2M7
Tranche Type MEZ_FLT
Issuer Accredited Mortgage Loan Trust
Deal Accredited Mortgage Loan Trust 2004-3
Deal Type Home Equity
004375BX8 Deal ID : ACCT0403 As Of Date : 4/30/2010
Cusip 004375BX8
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OpenRisk provides an advanced equity management trading portal; The equity portfolio manager workstation (OpenEquity) is targeted towards investors worldwide.
This comprehensive suite of trading tools, covers front to back-office processes with specific emphasis on:
Our advanced trading solutions product facilitates investors’ investment decision making processes to help generate superior returns on investments.
NEWOAK SOLUTIONS OpenRisk™ - OpenEquity
OpenEquity Portfolio
Management Workstation
(PWM”)
Portfolio Manager Workstation
Alpha Signaling
Risk ModelingBack-Office Processing
Equity Trading
Customized Portfolio Manager Workstation
Powerful Alpha Signaling
Robust Risk Management
Sophisticated Equity Trading
Seamless Back-Office Processing
Portfolio Manager Workstation “PMW”
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Portfolio Manager Workstation
The Portfolio Manager Workstation provides an extensive array of tools combining the data sources needed to make informed investment decisions that yields profitable results.
The platform employs a fully customized user interface (UI) that integrates seamlessly into any Microsoft infrastructure.
NEWOAK SOLUTIONS OpenRisk™ - Equity
Portfolio Manager
Workstation
Alpha Signaling
Risk Modeling ALTRON Back-Office
Processing
•Equity positions, dollar balances, industry weightings, risk exposures, non-linear transaction cost estimates
Integrated Pre-Trade Analysis
•Equity pricing, currency rates, and textual news that converts into measureable sentiment sources
Real-Time Analytics
•Provides investors a disciplined method to monitor a stock news and incorporate that in its alpha and risk measures
Surveillance Tools
•Choose investment style, horizons, and regions to invest
Custom Alpha Signals
•Identify risk exposure levels, view signals at granular levels, and make trade decisions on a seamless platform
Integrated into Portfolio Manager Workstation
Benefits to investors:
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Our proven alpha generating can be tailored to your specific investment style, with a proven track record.
The Alpha Signal capability supports investing in both domestic and international strategies worldwide.
Benefits to investors:
Annualized Alpha6.72%
5.02%3.83%
3.21%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
International Strategy Real Estate Strategy Leveraged MarketNeutral
U.S. Strategy
Anualized Alpha
DISCLIAMER:Since fund inception through November 30, 2010.The fund Benchmark changed from the Bank of New York ADR Index to the FTSE All World ex. US Index
on 1/1/2007 to reflect the expansion of the portfolio’s composition. Data referring to the “Benchmark” refers to the Benchmark that was in effect at the time in question.
The performance of the various Strategies presented herein are based upon a composite. A composite is an aggregation of one or more portfolios into a single group that represents a particular investment objective or strategy. Composite returns are calculated based on Global Investment Performance Standards (GIPS), are based upon the asset weighted average of the component portfolios' returns using beginning-of-period values, are calculated after the deduction of actual trading expenses incurred during the period, and are reported net of fees. A complete list and description of the firm's composites, including fee schedules and policies for calculating and reporting returns, are available upon request.COMPOSITE STRATEGIES ARE OPEN TO SEPARATELY MANAGED ACCOUNTS ONLY.
Portfolio Manager
Workstation
Alpha Signaling
Risk Modeling ALTRON Back-Office
Processing
• Choose investment style, horizons, and regions to invest
Custom Alpha Signals
• Identify risk exposure levels, view signals at granular levels, and make trade decisions on a seamless platform
Integrated into Portfolio Manager Workstation
• Discuss specific alpha factor needs with researchers and portfolio managers, at Alpha Equity
Dialogue with Alpha Equity Management colleagues
NEWOAK SOLUTIONS OpenRisk™ - EquityPortfolio Manager Workstation: Alpha Signaling
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-1.00% -0.50% 0.00% 0.50% 1.00% 1.50%
Portfolio Manager Workstation: Equity and Currency Risk Modeling
Our risk management platform contains a suite of tools that range from real-time sensitivity analysis to portfolio attribution reporting.
The custom risk modeling enables daily risk calculations at the stock level aggregated to the portfolio level for the including:
Industry, sector, and region Beta, size, and style Oil, interest rates, and currencies
Benefits: Identifies risk contribution for each trade Ensures risk exposure tolerances are sustained Calculates detailed portfolio attribution Archives data for regulatory agency demands Produces in-depth reporting capabilities
Our risk modeling techniques allow investors to manage their risk real-time for better decisions and transparencies
Return from Alpha ModelReturn from Trading
Expenses
Return from Risk Factors
Return from Sector WeightsReturn from Currencies
Return from Region Weights
REPRESENTATIVE DETAILED ATTRIBUTION
Risk Factor Portfolio Exposure
Benchmark Exposure
Active Exposure
Factor Variance
Variance Contribution
CONTINENTAL EUROPE 0.00 0.01 (0.01) 386.99 0.18 ENGLISH-SPEAKING COUNTRIES 0.01 (0.00) 0.01 362.00 (0.14) SOUTH AMERICA & MEXICO 0.01 0.01 (0.00) 339.25 0.03 ASIA 0.04 0.04 0.00 448.21 (0.03) INDUSTRIAL SECTOR 0.35 0.19 0.15 495.01 (1.57) CONSUMER SECTOR 0.09 0.14 (0.06) 247.76 0.69 TECHNOLOGY&HEALTH SECTOR 0.13 0.13 (0.00) 283.12 0.01 INTEREST RATE SENSITIVE SECTOR 0.25 0.34 (0.10) 387.06 1.94 NON-ENERGY MINERALS 0.06 0.08 (0.01) 910.28 0.10 ENERGY MINERAL SECTOR 0.09 0.09 (0.00) 491.94 0.03 OIL PRICES IN USD (0.04) (0.03) (0.01) 1,255.90 0.08 DEVELOPING MARKET 0.02 0.06 (0.04) 176.16 0.51 SIZE (0.15) (0.07) (0.08) 63.18 0.63 VALUE/GROWTH (0.22) (0.39) 0.17 7.44 0.14
Factor Tracking Variance 6.33 Stock Specific Tracking Variance 12.59 Total Tracking Variance 18.91 Tracking Error 4.35
Illustrative Risk Decomposition For International Equity Strategy
NEWOAK SOLUTIONS OpenRisk™ - Equity
Portfolio Manager
Workstation
Alpha Signaling
Risk Modeling ALTRON Back-Office
Processing
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Portfolio Manager Workstation is fully integrated with “ALTRON”, ITG’s award winning Triton Trade execution platform, co-developed by NewOak Capital and ITG.
Key Benefits Include: Broker-neutral global market and algorithm access List and single stock trading tools Extensive customization capabilities Independent post transaction cost analysis Fully integrated front to back-office operations
processing
ALTRON empowers the investor to determine the right strategy to trade worldwide.
Portfolio Manager
Workstation
Alpha Signaling
Risk Modeling ALTRON Back-Office
Processing
NEWOAK SOLUTIONS OpenRisk™ - EquityPortfolio Manager Workstation: Advanced Electronic Trading
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Back-office processing sends equity, fixed income and currency trades to custodians in a seamless, straightforward process
Operations personnel provide the following services:
Corporate Actions Position Reconciliation Positions Repository Trade Verifications with all Clearing
Institutions Currency Transactions
The Integrated Equity Management Solutions system provides everything you need: software, market data, and back-office operation services
Portfolio Manager
Workstation
Alpha Signaling
Risk Modeling ALTRON Back-Office
Processing
NEWOAK SOLUTIONS OpenRisk™ - EquityPortfolio Manager Workstation: Back Office Services
Domestic
• Domestic• BNY Mellon• Deutsche Bank• UNX• ITG• Instinet
Prime Brokers
• State Street• J.P. Morgan• Morgan Stanley• Pershing• UBS
International
• J.P. Morgan• Morgan Stanley• ITG• Instinet• UBS
Administrative Services
• State Street• KPMG• Madison Grey• Bison Financial Services• GH&I
Executing BrokersClearing
Institutions/Custodians
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Appendix II. Investment Support Services
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COUNTERPARTY RISK MANAGEMENT
COUNTERPARTY CREDIT ANALYSIS
CREDIT EXPOSURESDERIVATIVES & LOANS
ISDA & CSAVALUATION & MONITORING
OPTIMIZATION
NewOak’s counterparty and collateral management offers an advantage in asset managementNEWOAK ‘S COLLATERAL AND COUNTERPARTY RISK MANAGEMENT
Alternative asset management requires sophisticated infrastructure for collateral and counterparty management
Spectrum of complex documentation interpretation, computation, valuation, optimization, and execution leads to challenges and opportunities for state-of-the-art collateral management systems and operations
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NewOak Solutions: Front to Back Solutions
Asset Management Support Services
Front Office Middle Office Back Office
Pre & Post Trade Analytics.Trade Capture and Portfolio
Management.Risk Management Analytics:
Fixed income and Equity.Equity Portfolio Style Factor
analysis.Equity Order Management and
execution.Benchmark Relative analysis.Scenario and Stress Testing.
Trade Support Services
Confirmation
Reconciliation
Portfolio Pricing
Profit / Loss Analysis
Collateral Management
Reporting
Investor Reporting.Accounting Support:
Independent Valuation for NAV..Reporting:
PerformanceExposureComplianceTransaction Cost AnalysisBenchmark Relative Reporting
NEWOAK ASSET MANAGEMENT PORTAL SOLUTIONS
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• Decision Support Infrastructure:• Pre and Post Trade Analytics• Portfolio Management• Risk Management
•Market and credit risk•Domestic & international
• Execution Infrastructure:• Trade Execution• Transaction Cost Analysis
and Optimization
NewOak Solutions: Front OfficeNEWOAK ASSET MANAGEMENT PORTAL SOLUTIONS
Front Office Services Middle Office Services Back Office Integration
Assumption Vectos
Structured Securities
Fixed Income
Equity
Derivatives
Asset Management Support Services
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NewOak Solutions: Analytics
Front Office Services Middle Office Services Back Office Services
Independent Valuation
•Reconciliation to prime brokers and CSA agreements•Collateral Challenges
Collateral Management:
•Performance across fixed and equity
Attribution Reporting:
•Performance Reporting•Compliance Reporting•Benchmark Relative Performance and Exposure Reporting
Customized investor reporting:
Portfolio Monthly ActiveFactor Factor ReturnExposure Return Contribution
Currencies 1 - Europe xUK -3.74% 1.57% -0.06%2 - UK & Ireland 4.11% 1.50% 0.06%3 - Australia/New Zealand 1.02% 1.23% 0.01%4 - Asia Pacific xJapan, A&NZ -1.24% 0.94% -0.01%Total Currencies -1.31% 0.11%
NEWOAK ASSET MANAGEMENT PORTAL SOLUTIONS
Asset Management Support Services
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NewOak Solutions: Strategic Services
Front Office Middle Office Back Office Integration
• Full Integration with third party custodians and administrators for complete front to back capability
NEWOAK ASSET MANAGEMENT PORTAL SOLUTIONS
Asset Management Support Services
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Ongoing Surveillance
Reports
Process Flow And Control
Collateral Characteristic
Origination Documentation
StratusCollateral Management
& Reporting
Execute
Analyze
Collect
Legal Documents & Data Files
Key Underwriting Variables
Ongoing performance, roll rates, cash flows
Expression engines, alerts, etc.
Stratus: The Intelligent Loan and Collateral Management System NEWOAK SOLUTIONS OPENRISK™ - STRATUS
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Extensive capabilities across all aspects of securities finance:
Collateral Management Services: Stratus
Repo
•MRA/GMRA: Repurchase Agreements
•Core and Complex Fixed Income
ISDA
•Initial Margin
•Margin Verification
Exchange
•FCM•DCM
Central Clearin
g
•Verification and Checking of Central Clearing
•Cross Margining and Risk Based Margining
NEWOAK SOLUTIONS OpenRisk™ - Stratus