Challenges and opportunities for financial market globalisation

Challenges and opportunities for financial market globalisation

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  IFoA CANUK JointEvent 2016 金融市场全球化的 机遇与挑战 1
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  IFoA CANUK JointEvent 2016 The globalization of financial market 2 Due to current control on capital account, China’s contribution to global financial integration is significantly lagged behind its contribution to world trade and GDP. The gap is largely seen in portfolio investment and derivatives. Source: IMF, Bank of England Quarterly Bulletin 2013 Q4
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  IFoA CANUK JointEvent 2016 The globalization of financial market Japan as a case study 3 Source: IMF 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% Japanese External Assets as % of GDP Assets, Direct investment Assets, Portfolio investment Assets, Other investment Assets, Reserve assets 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Japanese External Liabilities as % of GDP Liabilities, Direct investment Liabilities, Portfolio investment Liabilities, Other investment
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  IFoA CANUK JointEvent 2016 The changes brought in by financial market globalization 4 Challenges Opportunities Potential source of economic growth Enhanced market depth and breadth Increased sources of finance for domestic borrowers Expanded opportunity set More prone to external shocks Lower profit margin from traditional sources Higher liability costs for domestic FIs Increased competition Integration brings China closer to the world financial markets
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  IFoA CANUK JointEvent 2016 The static business model is not sustainable in the new business environment 5 Net Interest Income and Net Interest Margin - US Banking Sector Source: Bloomberg • Observable cycle in NIM • Curve flattening pressed down NIM • Net interest income growth slowed down significantly in the last decade • Need to explore alternative sources of revenue to maintain growth
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  IFoA CANUK JointEvent 2016 Facing the challenge 6 •Dynamically position market exposures based on views of the economic cycle •Subject to capital charge and risk budgeting •Expand opportunity sets into new territories •Employ revolutionary investment philosophies •Seek true alpha and smart beta – enhanced portfolio efficiency •i.e. ABS, MBS and other Credit derivatives etc. •Equity release mortgages •Investment and advisory business •Expand traditional business •Increased leverage on traditional business •Optimize capital structure to reduce financing costs and improve profit margin Optimize Traditional Business Innovative Products Dynamic Market Positioning Alternative Investments
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  IFoA CANUK JointEvent 2016 The Evolution of UK Insurance Industry 7 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 UK Insurance Asset Balance Sheet Fixed Income Equity Real Estate Other Investments Source: Bloomberg on the four largest insurance groups in UK, AVIVA, Prudential, Legal & General and Standard Life A typical case of change in insurance asset allocation in the UK market. Moving away from the traditional bond and equity allocation towards more dynamic asset allocations
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  IFoA CANUK JointEvent 2016 Multi-Dimensional Challenge Business Decisions Finance Risk Investment Product
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  IFoA CANUK JointEvent 2016 • Enables timely and effective strategic decision-making by providing “calls” to actions when the client diverges from its goals. • Provides a clear framework for assessing investment opportunities against the client’s specific requirements. • Ultimately allows the Client to exercise better control over the investment strategy. The Value of a Investment Risk Management Framework 9 Providing Transparency, Clarity and Structure to the Decision-Making Process Objective Measurement Performance Indicators Performance (June 12) RAG Primary Funding Objective To reach 110% funded on a swaps flat basis by 2029 Expected Returns (ER) > Required Returns (RR) RR: Libor + 308bps ER: Libor + 189bps Difference: -120bps Secondary Funding Objective To reach 100% funded on a Gilts+100bps by 2022 Expected Returns (ER) > Minimum Required Returns (MRR) RR: Libor + 277bps ER: Libor + 189bps Difference: -88bps Investment Strategy Actual Returns should exceed Expected Returns Actual Returns (AR) > Expected Returns (ER) AR: Libor + xxxbps ER: Libor + 189bps Difference: xxbps n/a Risk Budget The investment strategy should not risk the deficit worsening by £600mm over a 1 year period VaR95 < £600mm VaR95: £656mm Hedging Strategy Nominal and inflation hedge ratio should be maintained within +/- 5% of the funding ratio Funding Ratio (swaps flat) 67% n/a Nominal Hedge Ratio (swaps flat) 46.0% Inflation Hedge Ratio (swaps flat) 94.6% Collateral Maintain sufficient eligible for the purposes of covering margin calls that may arise from the Scheme’s current derivative positions over a 1 year period. Total available eligible collateral £936mm Remaining collateral after VaR95 event £610mm RAG Status Metric is at or above target Metric is within [10%] of target Metric is more than [10%] away “The Investment Risk Management Framework has put us in control of the investment risk in our scheme.” Penny Green – Chief Executive & Managing Director, SAUL Trustee Company
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  IFoA CANUK JointEvent 2016 60% 65% 70% 75% 80% 85% 90% 95% 100% 105% GHG Funding Level Comparison, 01/10/2010 - 31/12/2015 Original Strategy (Annual Vol. 15.82% since inception) (1 YR Vol. 17.22%) Dynamic De-Risking Strategy (Annual Vol. 12.31% since inception) (1 YR Vol. 7.86%) Dynamic Asset Allocation Case Study De-risking 10 Dynamic Risk Management Strategy driven by a Framework Limited Governance Resources Efficient Implementation “Redington helped us to establish a robust pension risk management framework as well as devising and implementing a new investment strategy which enabled us to be nimble and cost effective in making changes to our asset allocation to reduce risk as opportunities arose. The strategy has delivered outstanding results allowing us to reduce the Scheme’s overall risk while taking us closer to our objective of full funding.” Rita Powell – Independent Chairman of Trustees Outperformed original strategy by c.15% at significantly lower risk Buy and Maintain
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  IFoA CANUK JointEvent 2016 DGF – 动态成长基金 11 Sub Category Popular Example Product Asset Allocation Approach Long-Only or Long/Short Equity Weighting Correlation to Equity Markets Expected Maximum Drawdowns 1. Strategic Allocation Traditional Balanced Funds Relatively Static Long-Only High (>50%) Very High Large 2. Dynamic Allocation Ruffer Total Return Highly Dynamic Mostly Long-Only (can hold some relative value strategies) High Variability (10- 60%) Through the Cycle Varying Over Time Small-Medium 3. Absolute Return Relative Value Standard Life GARS Risk-Based Allocation, Not Asset Allocation Long/Short N/A (risk-based approach) Low Small
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  IFoA CANUK JointEvent 2016 DGF – 动态成长基金 12 Sample Dynamic Allocation DGF Manager Asset Allocation since 2001 (2) (3) (4) (1) Other
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  IFoA CANUK JointEvent 2016 13 Style Premia – 风格溢价 Alpha Style Premia Market Risk Premia Returns due to manager skill; a feature of (successful!) active management Returns that provide compensation for taking on market exposure (e.g. risk parity, synthetic equities) Often disguised as “alpha”, returns that are associated with style factors Value Momentum Carry Defensive Style Premia
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  IFoA CANUK JointEvent 2016 Style Premia – 风格溢价 14 0 50 100 150 200 250 300 350 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Regressed Invesco High Income Fund FTSE All Share Market Value Momentum Defensive Portfolio Weights 75% 13% 19% 52% Source: Deutsche Bank, Invesco, Bloomberg; Calculations: Redington Neil Woodford’s annualised outperformance over the FTSE All Share: 3.4% p.a. Replicating Portfolio
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  IFoA CANUK JointEvent 2016 15 Style Premia – 风格溢价 Cumulative excess return of the style premia factors vs. MSCI World -50% 0% 50% 100% 150% 200% Dec-89 Dec-92 Dec-95 Dec-98 Dec-01 Dec-04 Dec-07 Dec-10 Dec-13 CumulativeReturn Value Momentum Carry Defensive MSCI World
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  IFoA CANUK JointEvent 2016 Multi-Class Credit – 多种信用投资 16 Long Only Managers Long/Short Credit Hedge Funds Benchmark Credit Absolute Return Credit Multi-Class Credit Credit Relative Value Universe Long-only managers Long-only managers Long-only managers & alternative managers Alternative managers Credit Beta Long only Managed over the cycle to avoid drawdowns Long-biased Long and short over the cycle Return Target Benchmark + % Cash + 200-400bps Cash + 400-800bps Absolute return target Interest Rate Risk +/- Benchmark Typically neutral Typically long-biased Varies widely on an active basis Credit Profile As per benchmark Mainly investment grade Mainly high yield Varies
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  IFoA CANUK JointEvent 2016 Multi-Class Credit – 多种信用投资 17 Wide Range of Assets Dynamic Asset Allocation Benchmark Agnostic Approach Strategic Efficiency Access to Specialist Manager Skills
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  IFoA CANUK JointEvent 2016 18 Multi-Class Credit – 多种信用投资 2007 2008 2009 2010 2011 2012 2013 2014 2015 2.08% US LEV LOANS -9.44% EUR IG 70.44% EUR HIGH YIELD 10.33% EUR HIGH YIELD 1.51% US LEV LOANS 22.07% EUR HIGH YIELD 9.95% EUR HIGH YIELD 4.47% EUR LEV LOANS 5.50% EUR LEV LOANS -0.57% EUR LEV LOANS -21.20% EM CORP 57.77% US HIGH YIELD 10.13% US LEV LOANS 0.72% EUR LEV LOANS 18.07% EM SOV 9.19% US HIGH YIELD 2.12% EUR IG 4.91% EM CORP -1.44% EUR IG -24.69% US IG 51.62% US LEV LOANS 9.85% EUR LEV LOANS -1.67% EM CORP 14.54% EM CORP 8.59% EUR LEV LOANS 1.83% EUR HIGH YIELD 3.17% EM SOV -3.29% EM SOV -29.10% US LEV LOANS 43.43% EUR LEV LOANS 9.32% US HIGH YIELD -2.65% US HIGH YIELD 12.64% US HIGH YIELD 5.29% US LEV LOANS 1.60% US LEV LOANS 0.07% EUR HIGH YIELD -4.07% EM CORP -30.01% EUR LEV LOANS 39.04% EM SOV 7.93% EM SOV -2.66% EUR IG 9.74% EUR LEV LOANS 3.58% EM SOV 0.04% US IG -0.69% US LEV LOANS -4.76% US IG -33.78% EM SOV 25.17% EM CORP 2.68% EM CORP -3.45% US IG 9.67% US LEV LOANS 2.86% US IG -1.19% US HIGH YIELD -1.07% EUR IG -5.23% EUR HIGH YIELD -39.99% US HIGH YIELD 22.93% US IG 2.31% US IG -7.25% EM SOV 7.41% US IG 2.14% EM CORP -1.35% EM CORP -3.18% US IG -6.97% US HIGH YIELD -44.12% EUR HIGH YIELD 9.43% EUR IG 0.46% EUR IG -8.27% EUR HIGH YIELD 5.34% EUR IG 2.13% EUR IG -3.73% EM SOV -6.70% US HIGH YIELD 161% 45% -49%
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  IFoA CANUK JointEvent 2016 2-6 Austin Friars, London EC2N 2HD Telephone : +44 (0) 20 7250 3331 www.redington.co.uk For professional investors only. Not suitable for private customers. The information herein was obtained from various sources. We do not guarantee every aspect of its accuracy. The information is for your private information and is for discussion purposes only. A variety of market factors and assumptions may affect this analysis, and this analysis does not reflect all possible loss scenarios. There is no certainty that the parameters and assumptions used in this analysis can be duplicated with actual trades. Any historical exchange rates, interest rates or other reference rates or prices which appear above are not necessarily indicative of future exchange rates, interest rates, or other reference rates or prices. Neither the information, recommendations or opinions expressed herein constitutes an offer to buy or sell any securities, futures, options, or investment products on your behalf. Unless otherwise stated, any pricing information in this message is indicative only, is subject to change and is not an offer to transact. Where relevant, the price quoted is exclusive of tax and delivery costs. Any reference to the terms of executed transactions should be treated as preliminary and subject to further due diligence . Please note, the accurate calculation of the liability profile used as the basis for implementing any capital markets transactions is the sole responsibility of the Trustees' actuarial advisors. Redington Ltd will estimate the liabilities if required but will not be held responsible for any loss or damage howsoever sustained as a result of inaccuracies in that estimation. Additionally, the client recognizes that Redington Ltd does not owe any party a duty of care in this respect. Redington Ltd are investment consultants regulated by the Financial Conduct Authority. We do not advise on all implications of the transactions described herein. This information is for discussion purposes and prior to undertaking any trade, you should also discuss with your professional tax, accounting and / or other relevant advisers how such particular trade(s) affect you. All analysis (whether in respect of tax, accounting, law or of any other nature), should be treated as illustrative only and not relied upon as accurate. ©Redington Limited 2014. All rights reserved. No reproduction, copy, transmission or translation in whole or in part of this presentation may be made without permission. Application for permission should be made to Redington Limited at the address below. Redington Limited (6660006) is registered in England and Wales. Registered office: Austin Friars House 2-6 Austin Friars, London EC2N 2HD 联系方式 声明 近期获奖情况 Steven Yang Yu 于扬 Co-Head of ALM & Investment Strategy 电话: +44 (0) 203 326 7118 [email protected] Muqiu Liu 刘沐秋 Senior Vice President 电话: +44 (0) 203 326 7109 [email protected] 19 Redington 微信公众号
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  IFoA CANUK JointEvent 2016 20