PERU CAPITAL MARKETS DAY- OAK 2013

PERU CAPITAL MARKETS DAY- OAK 2013

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  PERU CAPITAL MARKETSDAY 2013 PANEL 4: LIQUID ALTERNATIVE INVESTMENTS, ALPHA-BETA, RISK MANAGEMENT, DUE DILIGENCE 1OAK KEYNOTE SPEAKER: GIOVANNI BONACCORSO,CEO 30 SEPTEMBER 2013
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  Peru Capital MarketsDay September 20132 Alpha or Beta? The alternative investment industry is full of claims of alpha. But what we find is many sources of alpha have become commoditized and are now more accurately described as alternative beta. ∝ ∝∝∝ ∝ ∝∝∝∝∝∝ ∝ ∝∝∝∝∝ ∝∝∝∝∝∝∝∝∝ ∝∝ ∝ ∝∝∝ ∝ ∝ ∝ ∝ ∝ ∝ ∝ ∝ ∝ ∝ ∝ ∝ ∝ ∝ Old Alphas New Betas
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  Peru Capital MarketsDay September 2013 REAL ALPHA The 1OAK Research & Investment Management Team has in-house capabilities to strip and replicate most of the liquid drivers of performance. LIQUID ALTERNATIVE BETA (e.g. Carry, PPP, Momentum ) EXOTIC BETA (e.g. Commodity Indices) TRADITIONAL BETA (e.g. Equity, Fixed Income Indices) Focus only on significant Alpha Generating Managers In-house replication and monitoring. Fee reduction for Investors In-house replication. Overall fee reduction. ETFs Trackers In-house replication. Overall fee reduction. ETFs Trackers Industry claimed “Alpha” returns 3 Alpha-Beta: Stripping & Replication This results in a better added-value portfolio with fee reduction for investors
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  Peru Capital MarketsDay September 20134 Hedge Fund Industry Return Replication also known as: ‘‘Alternative Beta’’ The hedge fund industry returns or “Alternative Beta” returns can be explained by simple investments and actually replicated very closely with a 4-Factor Investment formula: $100 Investment on Mar ’03 (the day HFRX Index was created) could have been invested into: Simplified Replication Formula for Illustrative Purposes ONLY: ( $20*SP500 + $20*USD/BRL + 20*JPY/AUD + $40 CASH ) = $100 in Alternative Beta I. $20 into SP500 ETF tracker  representing a Generic Equity Market Beta (20% investment) II. $20 into BRL deposit (USD/BRL exchange rate)  representing Emerging Markets (20% investment) III. $20 loan in JPY and invested into AUD  representing Interest Rate + Commodity/Inflation (20% investment) IV. $40 in Cash Overnight Local Deposit  representing RISK FREE Cash Short-Term Rates (40% investment) SEE NEXT PAGE FOR GRAPH RETURNS AND STATISTICS OF THE AMAZING REPLICATION RESULTS
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  Peru Capital MarketsDay September 2013 $90 $100 $110 $120 $130 $140 $150 $160 $170 mar-03 mar-04 mar-05 mar-06 mar-07 mar-08 mar-09 mar-10 mar-11 mar-12 mar-13 HF Industry Index HF Replicator (net of fees) HF Replicator (gross of fees) 5 1. 2. 1. Same Formula Presented in October 2009 (London, UK - Family Office Conference) 2. Same Formula Presented in February 2011 (Miami, USA – Latam Conference) 3. Same Formula Presented in September 2013 (Lima, Peru – Capital Markets Day) Hedge Fund Industry Return Replication also known as: ‘‘Alternative Beta’’ 3. TODAY $119.7 $113.4 $150.3 Illustrative example of $100 invested in Alternative Beta since 1st March 2003 A good proxy estimate of what investors pay HF managers in terms of fees over time. A huge amount coud be saved and converted in perfomance
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  Peru Capital MarketsDay September 20136 HF Industry HF Replicator Net (net of 1.5/20% industry fees) HF Replicator Gross (gross) Number of components >1000 4 4 Average Monthly Return (ann.) 1.9% 1.5% 4.3% Volatility (ann.) 6.0% 7.7% 8.8% Sharpe Ratio 0.3 0.2 0.5 Correlation to HF Industry (HFRX Index) n/a 76% 77% Hedge Fund Industry Return Replication also known as: ‘‘Alternative Beta’’ CONCLUSIONS:  Alternative Beta is easy to replicate even with just 4 factors.  Alternative Beta can be daily liquid without any problems or excuses. Daily liquid like an ETF for Equity.  Alternative Beta exposure must cost much less than the Industry is charging (famous 2/20 fees)  Portfolio Focus must be on Alpha generating managers (real superior trading skills) where fees are justified
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  Peru Capital MarketsDay September 2013 Emerging Markets Macro Event Driven Equity Long/Short CTA Relative Value Equity Market- Neutral Data Source: HFRX & Bloomberg Historical Industry Correlations versus: IGBVL S&P500 BUND ALTERNATIVE INDUSTRY Alternative Investment Industry 5 year correlations to Peru IGBVL Equity, S&P500 and German BUND - Illustrative 7 Emerging Markets 61% Macro 16% Event Driven 62% Equity Long/Short 70% CTA -6% Relative Value 54% Equity Market-Neutral 16% 61% -1% 75% 78% -24% 64% 9% -26% -6% -42% -47% 50% -37% -39% Note: Medium/High (>40%) correlation strategies should be avoided because they provide little diversification benefit
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  Peru Capital MarketsDay September 2013 y = 18,718x - 0,721 R² = 0,4636 -40 -30 -20 -10 0 10 20 30 40 50 60 -1,50 -1,00 -0,50 0,00 0,50 1,00 1,50 2,00 2,50 3,00 S&P500 1OAK Draw-down Risk Management Index (x) 1OAK Track Record Index (y) Dogs Gamblers Turtles Trading Stars y = 18.72 x – 0.72 R2= 0.464 Source: 1OAK Capital January 2011 8 Manager Selection by 1OAK Proprietary Research
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  Peru Capital MarketsDay September 2013 -30 -20 -10 0 10 20 30 40 50 60 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5 1OAK Draw-down Risk Management Index Gamblers Dogs Turtles S&P500 Source: 1OAK Capital January 2011 9 M O V E M E N T O V E R 1 M O N T H Trading Stars Manager Selection by 1OAK Proprietary Research
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  Peru Capital MarketsDay September 2013 STRATEGY TRADING STYLE Platform Track Max Record (years) Drawdown TU1 2.5% 4.3 0% 1% ±50% 1% 0.7 2.1% -1.4% FX, Systematic TU2 8.2% 3.5 1% 0% ±50% 0% 4.2 6.4% -6.1% G10 FX, Systematic TU3 12.8% 3.4 -13% 5% ±50% 11% 2.6 7.8% -9.3% FX & Vol, Discretionary TU4 4.9% 3.4 3% 0% ±50% 0% 5.5 4.8% -7.9% G10 FX, Discretionary TU5 4.8% 2.7 -4% 2% ±50% 1% 2.9 3.7% -7.1% Volatility Arbitrage TU6 8.2% 2.7 -7% 1% ±50% 3% 5.1 8.7% -18.3% FX, Systematic TU7 5.4% 2.4 2% 2% ±50% 0% 0.6 4.6% -5.0% Hi-Freq TU8 3.5% 2.3 1% 0% ±50% 0% 5.5 5.4% -5.4% FX, Discretionary TU9 15.4% 2.2 -5% 0% ±50% 0% 2.5 13.9% -22.4% Macro Quant TU10 14.7% 2.0 3% 0% ±50% 1% 2.6 13.5% -13.2% Macro Quant TU11 30.6% 2.0 -14% 2% ±50% 2% 0.8 10.6% -7.2% Commodity TU12 5.2% 1.8 3% 0% ±50% 2% 4.3 7.5% -10.9% Emerg. Mkt. FX TU13 5.2% 1.7 -7% 0% ±50% 1% 5.2 9.1% -16.0% FX, Systematic TU14 3.8% 1.6 0% 0% ±50% 0% 1.3 3.4% -2.4% FX, Systematic TU15 7.0% 1.5 0% 0% ±50% 0% 2.2 8.9% -7.6% Volatility Arbitrage TU16 6.3% 1.5 -11% 3% ±50% 1% 2.5 8.3% -7.4% CTA TU17 20.4% 1.4 27% 5% ±50% 61% 1.5 15.5% -20.4% Macro, Discretionary TU18 9.9% 1.4 9% 0% ±50% 1% 3.5 16.5% -23.9% CTA TU19 6.3% 1.4 -3% 0% ±50% 2% 3.7 11.6% -10.4% FX, Systematic TU20 14.4% 1.4 5% 0% ±50% 1% 1.7 26.5% -39.5% Commodity STATISTICSCORRELATION Time outside barrier Annualized Return Volatilityvs. IGBVL BarrierIGBVLT-Stat ALPHA BETA 10 Finding Real Alpha 1OAK’s Investment Management Team decomposes the returns of each Manager revealing the exposure to Alternative Betas using simple statistical proprietary tools. We can then source the alternative betas and the ‘Real Alpha’ in the most efficient manner. Top 20 Managers ranked by statistical significance of ‘Real Alpha’: 𝑅𝑖 = ∝𝑖 + 𝛽𝑖𝑗 𝐹𝑗 𝑗
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  Peru Capital MarketsDay September 201311 Risk Management Pyramid 4 Levels Monitoring: • The impact of significant negative correlation for too long • Avoidance of idiosyncratic risk of a single trading unit • Exposure to asset classes that investors hold • Correlation benefits: consistency & sustainability • Real diversification benefit • Zeroing of correlation benchmark • Statistically significant alpha GAP Risk Correlation & Dispersion Risk Management Portfolio Alpha Risk Management Single Book Risk Management MANAGER OF DB SELECT DEUTSCHE BANK I II III VI
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  Peru Capital MarketsDay September 201312 1OAK Multi-Strategy Indexes Balanced & Diversified Portfolio across Assets and Styles ∝ ∝ Old Alphas New Betas Statistics Correlation Statistics Fixed Income Rates Commodities Equity Volatility FX Emerging Markets Alpha Arbitrage Technical Momentum Contrarian Relative Value Hi-frequency Pattern Recognition ZERO CORRELATION TARGET Rebalancing the Alpha returns Daily to monthly management Rebalancing the dispersion of returns – vs- selected index , monthly to quarterly management Balance between the quality of the return and when the returns are generated in the context of purest diversification.
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  Peru Capital MarketsDay September 201313 Due Diligence – Unique Multi Level 1OAK LIQUID INVESTMENT STRATEGIES have successfully passed multiple due diligence screenings on the Group level and on individual investment strategies. 1OAK Group and its key personnel have successfully undergone background checks as required by 1OAK Group’s clients, partners and administrators: Mercer, subcontracted by Deutsche Bank, carried out systematic screening, control on content quality, and investment ratings for 1OAK Group and its trading strategies and professionals. 1OAK Strategies successfully passed Mercer on all due diligence checks. Kroll, subcontracted by Deutsche Bank, carried out independent background checks on key personnel and due diligence on 1OAK funds. To date, 1OAK Group has structured and launched over 50 Financial Securities, 12 Multi-Strategy Indices, 5 stand- alone Single Manager Programs. 1OAK Group successfully passed all Kroll due diligence checks. DD, ASSESSMENT DD, BUSINESS & REGULATORY DD, CONTENT & INVESTMENT RATING DD PERSONNEL BACKGROUND CHECKS DEUTSCHE BANK I II III VI
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  Peru Capital MarketsDay September 2013 Fund of Funds Industry vs. 1OAK Multi-Strategy FoF 1OAK LIQUIDITY TRANSPARENCY SAFETY 4 LEVEL RISK MGMT FULL CONTROL OF AUM (No Side Pocketing/Gating) 2 & 20% FEE LAYER FLEXIBILITY OF INVESTMENT FORMATS i.e. Principal Protected Notes ACCESSIBILITY IN DIFFERENT CURRENCIES PEN, BRL, MXP, and other G20 currencies Multi Due Diligence screening level: (Mercer, Kroll, DB and 1OAK) P P P P P P P P P 1OAK represents a paramount shift in Hedge Fund Investing. • To a certain extent, the FoF business model is obsolete, simply because they cannot access daily returns data. Usually returns are made on a monthly basis and even these are lagged by a few days. 1OAK is therefore able to be first to market. • Thanks to the DB Select platform technology, our team can constantly monitor & manage each single Manager’s performance and risk taking, just like in an Investment Bank Proprietary Trading Desk. • Capital Allocation across Managers is therefore optimized from inception and on an ongoing daily/weekly basis with the sole objective of yielding the highest returns relative to the investor risk profile. • No unnecessary risk taking: Thanks to DB Select and their stop-loss we have no gap risk. Also, no fraud risk thanks to the managed account approach, hence no Madoff risk. 14 1OAK Innovative Business Model
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  Peru Capital MarketsDay September 2013 Thank you for your attention and for having me as a speaker - Any questions from the audience and/or panelists? 15