Global Transition Management

Transcription

1 Global Transition Management ETF Case Studies Emerging Markets Exposure Maximizing the value of your investment decisions. Jim Karelas th June, 2012

2 Case Study 1 Cash Equitisation Client was adjusting global equity style with greater allocations to Emerging Markets AUD 300M cash to invest in Emerging Markets. Benchmark was MSCI Emerging Markets Index. IMAs would be completed in ~6 weeks. Wanted immediate exposure. Choices: Instrument Pros Cons Explicit Costs Implicit Costs Futures (basket) Listed contracts based on country indices High TE ~15% Poor liquidity Limited basket opportunities Commissions Roll Costs Dividend Risk TE Futures (e-mini EM) Lower TE Single contract Poor liquidity Commissions Roll Costs Dividend risk TE Swap Lower TE Customisation Counterparty risk ISDA required Commissions Legal fees Counterparty risk Funding and interest rate risk Break fees EM ETF (EEM - ishares) Very good liquidity Exchange traded Low TE relative to other choices ~5% Hold ST, MT, LT Delayed Settlement High MER Timing between trading hours of ETF and underlying basket of equities Commission MER (%p.a /n weeks) Market Impact Opportunity Costs TE 2

3 Case Study 1 Cash Equitisation The EEM ETF was the instrument of choice. US listed and very liquid ~USD2.2Bn T/O daily in the secondary market. Correlation was to MSCI TR Net EM Index Order represented ~13% of historical ADV. Bought OTD Once IMAs where in place, ETF was sold down in line with the purchase of the new manager portfolios. No gap in performance measurement or need for performance holidays. 3

4 Case Study 2 Exposure Management Super fund client could not use futures or swaps. Two different redemptions required 1 week apart. Target portfolio was Emerging Markets discrete mandate. IMA was still being finalised ~ 6-8 weeks away Total size of redemption was AUD 73M. Size of new fund was going to be AUD 98M. Cash injection of AUD 25M. Client concerned as to how they were going to manage exposure. First redemption effective 29 th September 2011, the second 6 th October 2011 We bought the equivalent ishares Emerging Market ETF with long settlement in 2 tranches to match the effective redemptions dates T th September th October th October

5 Case Study 2 Exposure Management cont d First cash flow received 5 th October 2011, second cash flow on the 12 th October. The ETF position was held until the 28 th October, at which time it was sold down in line with the purchase of securities representing the new underlying mandate. There was no gap in performance. 5

6 Contact Information Jim Karelas PHONE: GLOBAL HEADQUARTERS: Level 56, MLC Centre Martin Place Sydney NSW 2000 GLOBAL TRANSITION MANAGEMENT OFFICES: New York London Sydney Johannesburg Dubai ConvergEx Group is a global technology firm. Its companies focus on providing software products and technology-enabled services in the following areas: global execution, commission management, independent research, transition management, trade order management, portfolio margining and prime services. These businesses do not engage in market making, investment banking or at risk proprietary trading. When executing trades, one or more ConvergEx Group companies may operate in an agency, riskless principal and/or net trading capacity in search of liquidity for customers. ConvergEx Group in the United States comprises ConvergEx Execution Solutions LLC (member NYSE/FINRA/SIPC); LiquidPoint, LLC (member CBOE/SIPC); G-Trade Services LLC (member FINRA/SIPC); Westminster Research Associates LLC (member FINRA/SIPC); Eze Castle Transaction Services LLC (member FINRA/SIPC); ConvergEx Prime Services LLC (member FINRA/SIPC); Eze Castle Software LLC, RealTick LLC and ConvergEx Solutions LLC, of which Cogent Consulting, ConnEx, Jaywalk and LDB are divisions. ConvergEx Group, LLC is a subsidiary of ConvergEx Holdings, LLC. In London, ConvergEx Group operates its subsidiary ConvergEx Limited, a U.K. broker-dealer that is registered in England and Wales No , authorised and regulated by the Financial Services Authority, and operates in Australia under an exemption from the requirement to hold an Australian financial services licence under the Corporations Act In Hong Kong, ConvergEx Group operates its subsidiary ConvergEx Asia Pacific Limited, a Hong Kong broker-dealer regulated by the Securities & Futures Commission. Any trademarks or service marks used by a ConvergEx Group, LLC company are owned by the company using the mark unless indicated otherwise. The material, data and information (collectively ConvergEx Information ) contained on or available through ConvergEx Group businesses may not be suitable for all investors, are for informational purposes only and are subject to change at any time, are not intended to provide tax, legal or investment advice, and do not constitute investment adviceorasolicitationoroffertopurchaseorsell securities. The ConvergEx Information is believed to be reliable but none of the ConvergEx Group businesses warrant its completeness or accuracy. Please read your agreement with us carefully, as it contains important information and disclosures about the product or service covered by it. REV: 5/23/12 - BG 6