Presentation on how asset managers can better utilize analytics to improve portfolio management, performance, and risk management. Part of Moodys Analytics Breakfast Series March 2017

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Stay Agile in Dynamic Markets
Offshoring to optimize Portfolio Analytics,
Data Management and Digital Marketing functions
Wednesday, March 1 2017 New York Hilton Midtown

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Amit Sinha
Portfolio Strategist

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Agenda
Trends
that are driving the need for more agile analytics in asset management
Sample
of tools, solutions and strategies being adopted
Case studies
on improving processes and utilizing new and legacy systems
Address design, technology and behavioral considerations
Objective
HOW sales, trading and research can benefit
from improvements that we have seen in analytics over the last few years
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Trends driving need for a different approach
7.6%
6.7%
4.7%
3.6%
2.4%
Assumed
portfolio return
Past 30 years Growth
recovery
Average Slow growth
Returns for U.S. public pension funds (assumed and projected)
Percent
Return from a passive 60/40 portfolio
Gap (or need for alpha) = 0.9% 2.9% 4.0% 5.2%
Source: National Association for State Retirement Administrators. McKinsey analysis
5.2%
Lower/uncertain future expected returns
Pressure on fees
Source: Morningstar, Inc.
Estimated Net Flows by Expense Ratio Quintile $ Billion
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Shift toward passive and solutions
Forecast: Passive to Exceed 50% Market Share by 2023-24
Linear and Exponential Regression Models
Source: Moody's Investors Services

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Resulting in a shift in the nature of asset
management
Individual investors and institutions are asking
What additional value do I
get by investing with you?
» How does your solution meet my
needs?
» How can I trust that you have
my best interests in mind?
» Is there something new and
unique that you bring
Where are my returns?
» Should I just go to Vanguard?
» Can I get greater transparency?
» What do you mean you lost 10%
but still beat the benchmark?
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How do asset management businesses respond?

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Using analytics to create a storyline and following
Source: AQR. Note that the presenter is not affiliated in anyway with AQR
… Not selling returns anymore
The example of AQR…
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Investors are buying the solution, not just
performance
1,428
485
1,739
158
288
2009 2010 2011 2012 2013 2014 2015 2016
AQR Capital Management, LLC Dimensional Fund Advisors TWO Sigma Investments, LP Active Passive
% Increase in AUM
Source: SEC, Barclays Hedge
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AQR Capital Management, LLC Dimensional Fund AdvisorsTWO Sigma Investments, LP ActivePassive

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But analytics are not for quants anymore
And altered the nature of skills required to obtain results for
» Portfolio and risk analysis
» Alternative data sources
» Reporting and collaboration
… and many more
Tools in the post 2012 world have lowered barriers to entry
Disclosure: The presenter is an investor in Pellucid, Triyo, and Stockal
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Solutions revolve around data
… and how data is cleaned, accessed and served
Which makes analytics less of rocket science and more like fishing
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Solutions revolve around data
… and how data is cleaned, accessed and served
Which makes analytics less of rocket science and more like fishing
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Copyright Amit Sinha and Dukudraw 2017

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Solutions revolve around data
… and how data is cleaned, accessed and served
Which makes analytics less of rocket science and more like fishing
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Copyright Amit Sinha and Dukudraw 2017
Problem – simple but messy
» Multiple sources and stores of data:
– Data feeds, excel spreadsheets,
legacy databases, human brain
» Maintenance, verification, validation
is time consuming and error-prone
» Valuable data and insights remain
undiscovered
How to solve this?

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The roadmap for being agile with analytics
There is no short-cut, but there are small wins on the way
Define specific goals
» Client relations: e.g., customized reporting at T+1
» Trading and portfolio management: e.g., understand patterns
» Performance attribution and measurement: e.g., better utilize
legacy systems
Ask the big questions
» How can I demonstrate value (insight vs. ignorance)?
» How do I reduce costs and time to results?
» Can I improve my decision making?
Focus on the abstract
» Design
» Technology philosophy
» People and behavior
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How to be agile while fishing?
» What’s involved in creating a report?
» Understanding and improving business process before building a technology solution
» Asking why
Design
» Using cross-functional teams to gain value from legacy systems
» E.g. Value from internal databases, Factset, Bloomberg, bespoke tools
People
» Using PowerBI to provide immediate portfolio insights
Technology
Lets review three case studies
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Case study: improving a reporting
platform
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Design
Analyze process not the the tools
» Complex processes should not be replicated in a system
» Change the process, and build a simpler system

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Case study: value from legacy systems
Validate research or PM hypothesis
Small team with investment and programming knowledge
• Build bespoke tools for specific tasks, portfolio modeling, etc.
Reporting and risk analytics using Bloomberg, Factset, etc.
• Improve turnaround time and depth of analysis
• Utilize APIs and combine with Internal, Cloud, Open Source
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» Large organizations use multiple tools and legacy platforms
» Gain agility by having small teams with cross-functional expertise
People

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Case study: portfolio analysis
Using Power BI to understand portfolio exposures
N.B.: This content is in video format. To request the video, contact Amit amit.sinha@focus262.com
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Technology

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» Require a combination of skills
» Accessing and effectively communicating across silos
» … which makes organization culture play an important role in success
People and Organizational Behavior
Role of culture in success from analytics
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A cautionary tale
The divide between … quants and fundamental money managers was also intellectual. They
struggled to communicate about the basics, like how big data could inform investment
decisions.
“Data scientists and engineers working in isolation are very unlikely to deliver a product that
satisfies the need of fundamental investors.”
When quants showed their risk analysis and trading signals to fundamental managers, they
sometimes were rejected as nothing new, the people said. Quants at times wondered if
managers simply didn’t want to give them credit for their ideas.
Bloomberg February 2017
From: Why Data Nerds Struggle to Gain Power at Hedge Funds
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Need understanding and collaboration
Need
» People who understand both sides
» People willing to collaborate, so that
there is no discussion of “both sides”
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To conclude…
Small teams of people focused on design and collaboration can make it happen
Analytics can lead to incredible value for sales, trading and research
And is essential not just for growth but survival
Solutions are available that make it easy and inexpensive to improve reporting,
risk and portfolio analysis
Focus on process, simplify, start small and then expand
What do you think?
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