PIMCO Solutions Group

Transcription

1 PIMCO Solutions Group Our Solutions Group harnesses PIMCO s broad capabilities to provide innovative solutions to the challenges investors face today. We draw on the firm s proprietary research and analytics, rigorous risk management capabilities, macroeconomic views, and deep asset class expertise. We analyze individual client portfolios and partner with clients and their investment consultants in order to generate actionable investment insights, unique and customized to each client. For professional use only

2 Our goal: Develop actionable solutions tailored to our clients unique portfolio needs.

3 PIMCO Solutions Group 3 You face unique challenges. PIMCO can help. Our Solutions Group focuses first on gaining a thorough understanding of clients' investment challenges, and then presents our insights and recommendations in the context of their particular investment portfolios. We have helped clients address a range of issues PORTFOLIO CONSTRUCTION How can we meet return expectations in a low growth environment? How can we improve portfolio diversification? How can we optimize our allocation to PIMCO strategies? MACROECONOMIC/MARKET RISKS How can we prepare for severe market shocks? What is the most effective way to defend against inflation risk? How can we position for rising rates? INVESTOR TYPE-SPECIFIC CONSIDERATIONS How do we manage against our liabilities? How do we incorporate regulatory, tax and accounting considerations into our asset allocation decisions? How can we improve our strategy line-up for plan participants? We create customized solutions Understand client s objectives, concerns and constraints Conduct in-depth analysis backed by PIMCO s extensive global resources Generate actionable investment insights

4 4 PIMCO Solutions Group Generating actionable investment insights Our Solutions Group employs a rigorous quantitative approach to analyzing a client s current portfolio and potential opportunities. Our approach incorporates PIMCO s macroeconomic and asset class views and is guided at every stage by our clients areas of focus. We utilize a variety of tools, including portfolio risk factor analysis, optimization and asset class-specific capabilities. Investment insights within asset classes PIMCO s broad expertise and deep resources allow us to address investment challenges specific to each major component of a client s portfolio: Equities Fixed Income Quantify the impact of rising interest rates Maximize potential of the global fixed income universe Evaluate diversification from a risk perspective Increase return potential in a low growth world Aim to mitigate market shocks in an uncertain environment Evaluate different approaches to alpha generation in equity strategies CLIENT S PORTFOLIO Cash Restructure cash to meet liquidity needs without compromising return potential Increase yield potential by expanding the short term opportunity set Evaluate cash tiering strategies Alternatives Identify non-traditional sources of risk Evaluate the effectiveness of alternatives in a portfolio Estimate the impact of adding alternative and illiquid strategies on portfolio risk

5 PIMCO Solutions Group 5 Portfolio risk factor analysis We typically begin an engagement by analyzing a client s current portfolio. Portfolio risk analysis, powered by PIMCO s analytics platform, offers a diagnostic view of key sources of risk. This analysis leverages the same analytical framework our Portfolio Management team has employed and refined over decades. SAMPLE ASSET ALLOCATION VERSUS RISK ALLOCATION 100% Asset allocation (by market value weight) 120% Risk allocation (by contribution to estimated volatility) Percent of Market Value European bonds Global bonds European equity Global equity Percent of Estimated Volatility Other key factors Developed currency EU sovereign spread Corporate spread Nominal duration (developed) Global equity (developed) 0 Asset class -20 Risk factor Source: PIMCO. 31 May Hypothetical example for illustrative purposes only. Not intended as a recommendation, nor as a representation of any particular account, product or investment strategy. Information is dated and should not be relied upon for investment decisions. * Other key factors include: nominal duration (emerging markets), slope, convexity, emerging markets spread, mortgage spread, and European sovereign spread. Refer to last page for additional information regarding volatility estimates. Optimization and modeling Based on a client's objectives and areas of concern, we can present potential reallocations and evaluate the impact on the portfolio's risk and return characteristics. Our optimization approach leverages PIMCO's rigorous quantitative framework and the qualitative input of our investment strategists. Importantly, we can consider a client's specific liabilities and regulatory constraints in our evaluation.

6 6 PIMCO Solutions Group An expert team backed by PIMCO s extensive global resources PIMCO's Solutions Group is comprised of highly skilled professionals strategically located in our Newport Beach, New York, London, Tokyo and Sydney offices. The team benefits from full access to PIMCO s extensive resources, including the firm s global macroeconomic views, specialized product management teams and proprietary research. Bringing together unique capabilities for our clients 30+ INVESTMENT STRATEGISTS A team of asset allocation generalists and asset class specialists who offer key insights on portfolio construction and opportunities within individual asset classes. 10 QUANTITATIVE RESEARCH ANALYSTS A team of quantitative finance experts who build financial models and conduct research on asset allocation considerations, specific asset classes and investment strategies. INDUSTRY-LEADING ANALYTICAL SYSTEMS Cutting-edge applications that are continuously enhanced by a team of software developers. JEROEN VAN BEZOOIJEN Executive Vice President and Head of EMEA Client Solutions Mr. van Bezooijen is head of the EMEA Client Solutions team based in London. The solutions team works with clients to provide thought leadership and develop multi-asset and hedging solutions. Prior to joining PIMCO in 2008, he worked in the pensions and insurance strategy group at Goldman Sachs, where he focused on developing asset-liability solutions for pension funds and insurers. Prior to that, he was in the Pensions Strategy Group at Morgan Stanley and at Mercer Investment Consulting. He has 20 years of investment experience and holds master s degrees in both economics and econometrics from Erasmus University Rotterdam. SORAYA KAZZIHA Executive Vice President and Head of Client Analytics EMEA Ms. Kazziha is an executive vice president in the London office and head of client analytics for Europe, the Middle East and Africa (EMEA). Prior to joining PIMCO in 2012, she was a managing director and head of EMEA rates structuring at Credit Suisse, where she was responsible for offering structured solutions to institutional investors and public sector clients across the region. She has 16 years of investment experience and holds a Ph.D. in mathematical finance from Imperial College, London, and an electrical engineering degree from Ecole Superieure d Electricite (Supelec), Paris. Clients we serve Our Solutions Group works with a broad spectrum of clients and their investment consultants. Central banks Corporations Defined contribution plans Family offices Insurance companies Charities Pension funds Sovereign wealth funds Wealth managers

7 PIMCO Solutions Group 7 PIMCO employs highly granular holdings-based models to generate risk factor exposures. In our analysis, we may display aggregated risk factor data for ease of interpretation, but the granularity of the underlying models is maintained. For Alternatives/Illiquids and in selected cases where holdings information is unavailable or unreliable, PIMCO may use returns-based regression models to generate risk factor exposures. EQUITY Equity risk factors are based on the MSCI Barra Global Equity Model (GEM3). The exposure to each equity country or industry factor is the market value weight of stocks categorized in that country or industry. Style factors (such as size, value, and momentum) are standardized to have a mean of 0 and a standard deviation of 1. Please refer to Barra GEM3 documentation for more details. PIMCO disaggregates the Barra world equity factor into additive country exposures. Thus, the risk contribution from a certain country s equity exposure includes contributions from both the world equity factor and the country equity factor in the original Barra model. INTEREST RATE DURATION Measured in years, interest rate duration is the price sensitivity to a change in interest rates (e.g. the price of a bond with a duration of 5 years will fall by approximately 5% if interest rates instantaneously rise by 1%). PIMCO calculates both real and nominal durations sensitivities to real and nominal interest rates, respectively as well as duration exposures to interest rates in different currencies. The duration risk factor exposure measures a security's price sensitivity to a parallel shock of the par yield curve. PIMCO s systems use a scenario-based duration calculation by re-pricing securities under different rate shock scenarios. For securities with embedded options, effective duration is estimated by taking into account the potential impact of yield changes on future cash flows. SLOPE DURATION Interest rate duration reflects sensitivity to a parallel shift of the yield curve. However, parallel shifts rarely occur; the yield curve typically steepens or flattens as interest rates move. Measured in years, slope duration is the price sensitivity to steepening or flattening of the yield curve. PIMCO employs a 2-10 slope factor, which reflects sensitivity to the slope of the front end of the par yield curve, and a slope factor, which reflects sensitivity to the slope of the long end of the par yield curve. The 2-10 slope risk factor exposure measures the sensitivity to a steepening or flattening of the 2-year yield relative to the 10-year yield (e.g. the price of a bond with a 2-10 slope duration of 3 years will increase by approximately 3% if the difference between 10-year and 2-year yields widens by 1% while the 10-year yield remains constant). The slope risk factor exposure measures the sensitivity to a steepening or flattening of the 30-year yield relative to the 10-year yield (e.g. the price of a bond with a slope duration of 6 years will increase by approximately 6% if the difference between 30-year and 10-year yields narrows by 1% while the 10-year yield remains constant) SPREAD DURATION Measured in years, spread duration is the price sensitivity to a change in spread. For investment grade corporate spreads, PIMCO measures credit spread duration relative to a common reference set of securities, in order to normalize spread duration exposures across securities with different risk levels. Credit spread duration is estimated in two steps: 1. Calculate the sensitivity of the security s price to its own spread. This process occurs overnight and leverages PIMCO s proprietary pricing models. 2. Translate this sensitivity into spread duration relative to a reference spread using a proprietary model. This process utilizes the security s OAS and the OAS of the reference set of securities as well as the term structure of spreads. For spreads other than investment grade corporates, PIMCO calculates spread duration for a security based on the price sensitivity to a change in its own spread. These spread duration measures include, for example, high yield corporate, mortgage, and emerging markets. CURRENCY Currency risk factors capture a portfolio s percent exposure to any currency other than the base currency. VOLATILITY (ESTIMATED) We employed a block bootstrap methodology to calculate volatilities. We start by computing historical factor returns that underlie each asset class proxy from January 1997 through the present date. We then draw a set of 12 monthly returns within the dataset to come up with an annual return number. This process is repeated 25,000 times to have a return series with 25,000 annualized returns. The standard deviation of these annual returns is used to model the volatility for each factor. We then use the same return series for each factor to compute covariance between factors. Finally, volatility of each asset class proxy is calculated as the sum of variances and covariance of factors that underlie that particular proxy. For each asset class, index, or strategy proxy, we will look at either a point in time estimate or historical average of factor exposures in order to determine the total volatility. Please contact your PIMCO representative for more details on how specific proxy factor exposures are estimated.

8 A word about risk: Past performance is not a guarantee or reliable indicator of future use. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee there is no assurance that private guarantors will meet their obligations. Certain U.S. Government securities are backed by the full faith of the government. Obligations of U.S. government agencies and authorities are supported by varying degrees but are generally not backed by the full faith of the U.S. government; portfolios that invest in such securities are not guaranteed and will fluctuate in value. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. Hypothetical and simulated examples have many inherent limitations and are generally prepared with the benefit of hindsight. There are frequently sharp differences between simulated results and the actual results. There are numerous factors related to the markets in general or the implementation of any specific investment strategy, which cannot be fully accounted for in the preparation of simulated results and all of which can adversely affect actual results. No guarantee is being made that the stated results will be achieved. This material contains the current opinions of the authors but not necessarily those of PIMCO and such opinions are subject to change without notice. This material is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. PIMCO Europe Ltd services and products are available only to professional clients as defined in the Financial Conduct Authority s Handbook and are not available to individual investors, who should not rely on this communication. PIMCO Deutschland GmbH (Company No , Seidlstr a, Munich, Germany) is authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie-Curie-Str , Frankfurt am Main) in Germany in accordance with Section 32 of the German Banking Act (KWG). The services and products provided by PIMCO Deutschland GmbH are available only to professional clients as defined in Section 31a para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH ), Brandschenkestrasse 41, 8002 Zurich, Switzerland, Tel: The services and products provided by PIMCO Switzerland GmbH are not available to individual investors, who should not rely on this communication but contact their financial adviser. No part of this presentation may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. 2016, PIMCO. For professional use only CONTACT US If you would like to benefit from the expertise of PIMCO s Client Solution Group, contact your PIMCO representative or Jeroen van Bezooijen: Jeroen van Bezooijen, Head of EMEA Client Solutions E: Jeroen.vanBezooijen@uk.pimco.com T: +44 (0) London PIMCO Europe Ltd 11 Baker Street London W1U 3AH England Amsterdam Hong Kong Milan Munich Newport Beach Headquarters New York Rio de Janeiro Singapore Sydney Tokyo Toronto Zurich europe.pimco.com 42535