Portfolio Performance Measurement & Attribution Analysis

Course overview Portfolio performance measurement is the quality control element of the investment decision process. It provides the necessary information to enable asset managers and clients to assess exactly how their money has been invested and the results of the process. Performance measurement is a core part of the decision process providing essential information to several key stakeholders. Performance return attribution is defined as quantifying the excess returns of the active decisions of the investment management process. In recent years the developments in performance measurement, standards, risk and attribution (particularly Fixed Income Attribution) have accelerated considerably. This course brings all analysts, investors, risk managers and other stakeholders up to date with current developments. Summary of course content Understand the concept of performance measurement Learn the different ways to derive returns (and why the results can vary) Understand how cashflows affect returns Analyse the principles of benchmarking Ascertain why risk measurement and management are important and what the measures mean Discern the role of attribution, the challenges in getting it right, and how it should be used Understand the differences and difficulties of fixed income attribution Learn the status and application of the different international performance measurement standards Course level You should have a basic knowledge of Excel and are likely to have a basic working knowledge of the asset management industry and the main asset classes. Course documentation You will receive comprehensive course notes as well as copies of the Excel spreadsheet exercises for use after the course. Computer Based Excercises Delegates are required to bring their laptops to facilitate in-class studies and exercises. Who should attend this training course? Pension fund trustees Portfolio managers Senior management Performance measurers Risk controllers Compliance staff Sales and marketing staff and operations staff
Day 1 Introduction What is performance measurement? The performance measurement process Basic calculations Currency effect Time weighted or money weighted? Practical exercise: return calculations for an emerging markets portfolio Benchmarks Attributes of good benchmarks Peer groups, indexes or random portfolios Index calculations Practical exercise: customised benchmark calculations Excess returns Geometric or arithmetic Performance fees Basic attribution Attribution as a management tool The Brinson Models Geometric attribution Practical exercise: be a portfolio manager for a year: attribution exercise Day 2 Performance standards Background Fundamentals of compliance Why do it? Verification Future governance Guidance statements Practical exercise: – Definition of firm – Definition of discretion – Composite allocation Measuring portfolio risk Risk types in asset management Risk control Ex-post, ex-ante risk Absolute, relative and regression risk measures Bessel’s correction Sharpe ratio Information ratio M2 Regression statistics Jensen’s alpha Beta Covariance Correlation R2 Fama decomposition Practical exercise: portfolio evaluation Risk-adjusted performance measurement for hedge funds Skewness and kurtosis Bera-Jacque test Upper and lower partial moments Sortino ratio Upside potential ratio Omega Prospect ratio Variability skewnes Practical exercise: detailed risk calculations from raw data Drawdown Sterling ratio Calmar ratio Burke ratio Sterling-Calmar ratio Pain index Ulcer index Pain ratio Martin ratio Value at Risk Return to VaR Expected shortfall Adjusted sharpe ratio Modified sharpe ratio Practical exercise: risk-adjusted performance measurement for hedge funds Day 3 Further attribution Multi-currency attribution Ankrim & Hensel Karnosky & Singer Bacon Practical exercise: multi-currency geometric attribution exercise Attribution issues The evolution of attribution methodologies Security level attribution Multi-level attribution Smoothing algorithms Carino Menchero GRAP Frongello Fixed income attribution Campisi framework Weighted duration (Van Breukelen) attribution Yield curve decomposition Practical exercise: weighted duration attribution Derivatives Attribution for derivative instruments and alternative strategies Futures Options Swaps Market neutral, 130/30 funds Leverage Course summary and review