The Big IF... Stress-testing BREXIT with combined performance and r...

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The Big IF
STRESS-TESTING BREXIT WITH
COMBINED PERFORMANCE
AND RISK ANALYTICS

As every asset manager knows, the
whole idea behind risk analysis is to
find out what would happen IF.

As every asset manager knows, the
whole idea behind risk analysis is to
find out what would happen IF.
Where performance a...

As every asset manager knows, the
whole idea behind risk analysis is to
find out what would happen IF.
Where performance a...

As every asset manager knows, the
whole idea behind risk analysis is to
find out what would happen IF.
Where performance a...

“There is not one future
world. There are a billion
possible future worlds.”
DAMIAN HANDZY, GLOBAL HEAD OF RISK, STATPRO

Right now the big IF is a Brexit vote.
This is a major EU referendum. UK residents will vote
on June 23rd and their decisi...

Vote Leave
So, what if the vote is to leave the EU? What then?
IN OUT

For portfolio managers there is a
compelling need to evaluate the
impact of a Brexit decision in the
EU referendum. UK vot...

THIS MEANS
Analyzing
their impact
on the
portfolio.
Being able to
identify the right
parameters for
stress testing.
Pullin...

DOING THIS GIVES
SHARPER VISIBILITY

DOING THIS GIVES
SHARPER VISIBILITY
Visibility = Action

DOING THIS GIVES
SHARPER VISIBILITY
Visibility = Action
It allows the manager to see when scenarios
become untenable from ...

As we all know, a Brexit vote would impact all
financial portfolios - whether or not they are
directly invested in Europea...

As we all know, a Brexit vote would impact all
financial portfolios - whether or not they are
directly invested in Europea...

As we all know, a Brexit vote would impact all
financial portfolios - whether or not they are
directly invested in Europea...

THREE FACTORS:
Currency
markets
UK and EU
equities
Commodities

EQUITIES
In the first weeks following a vote to leave the
EU, it’s likely that worldwide equities would fall.
UK equities ...

CURRENCIES
£
A vote to leave would drag the pound down
and could be quite dramatic on the 24th June.
Meantime, money would...

COMMODITIES
Commodities could be expected
to take a hit as worldwide
reaction becomes depressed.

What about the specific
impact on portfolios?

In this scenario, having a system that enables
managers to apply a range of movements to
investments and asset classes is ...

In this scenario, having a system that enables
managers to apply a range of movements to
investments and asset classes is ...

How much stress is
too much stress?
This is what we saw...

Suggested levels for stressing various asset
classes in the event of Brexit or Remain:
EU REFERENDUM: UK
GOES TO THE POLLS

Suggested levels for stressing various asset
classes in the event of Brexit or Remain:
EU REFERENDUM: UK
GOES TO THE POLLS...

Suggested levels for stressing various asset
classes in the event of Brexit or Remain:
EU REFERENDUM: UK
GOES TO THE POLLS...

Suggested levels for stressing various asset
classes in the event of Brexit or Remain:
EU REFERENDUM: UK
GOES TO THE POLLS...

Suggested levels for stressing various asset
classes in the event of Brexit or Remain:
EU REFERENDUM: UK
GOES TO THE POLLS...

We added a bit
of our own stress
testing to this…

We applied a correlated/predictive
stress test on three portfolios:

We applied a correlated/predictive
stress test on three portfolios:
A typical global
long/short equity
fund.

We applied a correlated/predictive
stress test on three portfolios:
A typical global
long/short equity
fund.
A US institut...

We applied a correlated/predictive
stress test on three portfolios:
A typical global
long/short equity
fund.
A US institut...

WE RAN TWO
STRESS TESTS:
We performed a multivariate regression analysis
on the constituents of the three portfolios to
es...

WE RAN TWO
STRESS TESTS:
We performed a multivariate regression analysis
on the constituents of the three portfolios to
es...

WE RAN TWO
STRESS TESTS:
We performed a multivariate regression analysis
on the constituents of the three portfolios to
es...

Now we can see what
the potential damage
is and where.
SEEING IS
BELIEVING

Global long/short equity could drop
by as much as 7% in a Brexit large
scenario. We might need to make
some adjustments.
7%

US institutional investors are less
impacted. Could elements of this
strategy be applied elsewhere?

European asset managers
could see a 5% drop. Could they
rebalance their portfolio in favor of
countries expected to suffer...

Having the right data to see the
initial impact and then delve
deeper means greater insight.

At what point does the pressure
become overwhelming?
What are the alternatives?
?

Without being able to
perform these analytics,
asset managers are at the
mercy of market sentiment.
?

They become
passive managers.

• Asset managers need to know the impact of any given event.
• Right now it’s the EU Referendum. UK sentiment is too clo...

LOOKING FOR
IMPROVEMENT IN
YOUR MIDDLE OFFICE?
Performance and Risk Analytics 2016-2020: why large
asset management firms ...

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