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Portfolio Management

That Monday morning just after Lehman had collapsed, the head of treasury department at CaixaBI, following market development on Bloomberg screens, was trying to figure out exactly what were the implications for its unit. A good chunk of the business was about managing a bond portfolio that profited from cheap and available funding. One thing was clear, that business could no longer be carried out. He hadn’t received any guidelines concerning funding restriction in the subsequent days but he knew that one day, the mother company, whom was providing 100% of the funding, would pose restrictions on the availability and on the price of the funding.

Understanding this was one issue, restructuring the activity at the business unit (BU) was another. In order to achieve the change, to reformulate the business model, team members had to “own” the change. A forced change was not likely to succeed. So, brain storming meetings were organized to discuss market developments and to position the BU for the new environment. The participation had to be as wide as possible. Not only to achieve consensus but also to grab as many ideas as possible.

Portfolio Management

Portfolio Management

After several lively discussions, where the wildest ideas were brought about, the end result was exactly what was expected: the team came up with a new approach to trading to minimize funding and capital usage. Furthermore, since the bank had targets for financial margin, the new approach was set allowing for achievement of those targets, with flexibility and minimal capital.

Concerning stable asset holdings the focus was given to short term assets with low capital requirements.

On the fixed income trading side, the focus was on the most liquid assets or on the ability of the bank to liquidize any trading position. Positions on Portuguese corporate bonds had an important role on this positioning, since the bank could benefit from an outstanding franchise. The sales Business Unit gave a particular boast in this respect allowing for a substantial turnover increase.

In addition, the BU supported a company initiative to provide electronic trading to institutional investors. This has been a useful tool to increase bond trading without holding position for long periods as was the case in the past. Now traders understand better institutional investor clients’ needs. Portfolio holdings are adjusted accordingly: issuer, size and maturity wise. As a consequence volumes and financial operations have been increasing steadily in the last couple of years with a much lower exposures and use of capital resources.

To compensate for the reduction of the size of the managed fixed income portfolio, the team organized itself in a more integrated fashion to manage a multi-asset portfolio with emphasis in exchange traded derivatives. The freed resources used before to manage credit portfolio are now devoted to manage that multi-asset portfolio jointly with the rest of the team. This reallocation of resources was an important element of the new strategy.

To manage the multi-asset portfolio, in order to reduce team biases to market directions, the whole team agreed to develop different market strategies, based on market or economic information. The human input to these models is pretty much confined to the conceptualization, testing and validations phases. Basically, the team identifies variables, either market or economic variables, that can signal ex-ante a market direction. To confirm that the signal is relevant, models are back-tested and confirmed for a long and relevant period. If finally the back-testing results are strong, the team proposes to set it up and once it gets it approved, it starts trading the model. Ideally the signals and the instruments to be traded should be as diverse as possible so that the end result is a diversified low correlated portfolio with returns non-correlated with the market direction of any single instrument.

The BU has currently up and running 10 long/short strategies, 3 based on fixed income futures and 7 based on equity futures. Four years on since inception, the results are impressive, in absolute and relative terms, especially in what concerns return/risk measures.

Both activities, future trading and bond trading, have produced outstanding results particularly if measured against capital usage and risk taken. Although there is still room for improvement, overall statistics are improving steadily. In the last 12 months in only 75 days out of 261 has the P&L been negative. However, more importantly, the average positive daily P&L is 3,5 times as big as the average daily negative P&L. On a weekly basis that figure is 13,6x.

Markets live currently in an apparent calm, however one never knows what the future may bring. One thing is for sure, the treasury department at CaixaBI seems prepared to withstand market volatility in whatever market segment it re-emerges. Tail events can always happen therefore the head of unit keeps challenging his team regularly to rethink the business model. For now everything seems to be working just fine but who knows what might threaten the business model in the future.


Bitcoin, crypto inflows hit record last week – CoinShares



Bitcoin, crypto inflows hit record last week - CoinShares 1

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – Investment flows into cryptocurrency funds and products hit a record $1.31 billion last week after a few weeks of small outflows, as investors took advantage of the decline in bitcoin and other digital asset prices, according to the latest data on Monday from asset manager CoinShares.

Total assets under management (AUM) in the industry slipped to $29.7 billion as of Jan. 22, from an all-time peak of $34.4 billion on Jan. 8. At the end of 2019, the total AUM was just $2 billion.

Grayscale, the world’s largest digital currency manager, posted assets under management of $24 billion last week, down from $28.2 billion on Jan. 8. CoinShares, the second largest crypto fund, managed assets of $2.9 billion in the latest week, also down from $3.4 billion on Jan. 8.

“We believe investors have been very price conscious this year due to the speed at which prices in bitcoin achieved new highs,” said James Butterfill, investment strategist, at CoinShares.

“The recent price weakness, prompted by recent comments from Secretary of the U.S. Treasury Janet Yellen and the unfounded concerns of a double spend, now look to have been a buying opportunity with inflows breaking all-time weekly inflows,” he added.

Bitcoin dropped to a low of $28,800 on Friday, after scaling an all-time peak of $42,000 on Jan.8. It was last down 0.5% at $32,124.

About 97% of inflows went to bitcoin, the data showed, with Ethereum, the second largest cryptocurrency, posting inflows of $34 million last week.

So far this year, volumes in bitcoin have been considerably higher, trading an average of $12.3 billion per day, compared to $2.2 billion in 2020.

Glassnode, which provides insight on blockchain data, said in a report on Monday that bitcoin’s net unrealized profit/loss (NUPL) was getting close to exceeding the “belief” range and moving into the “euphoria” range.

Previously, when NUPL entered this range, it signaled a global top in bitcoin’s price.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Richard Chang)

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A practical guide to the UCITS KIIDs annual update



A practical guide to the UCITS KIIDs annual update 2

By  Ulf Herbig at Kneip

We take a practical look at the UCITS KIID

What is a UCITS KIID and what is it used for?

The Key Investor Information Document (KIID) is a 2- or 3-page summary document detailing a fund’s charges, risk & reward profile, past performance and the overall objectives and investment policy.

What does the regulation say about the annual update?

In terms of annual updates, according to EU Regulation 583/2010, Fund Managers have 35 business days (excluding weekends) from December 31 to issue a revised version of the KIIDs including the performance of the calendar year that just ended.

The Regulation says that the documents must not only be produced but also made available to investors before the 35-business-day-delay is elapsed. This means that Fund Managers must compute the past performances for the year 2020, update the documents that are currently made public, in all applicable languages, proceed with filing to regulators and ensure that these documents are published on websites.

When is the deadline this year?

In the absence of any legal holiday in January and February, the deadline is set to 35 business days from January 1st, which leads to Friday 19 February 2021.

If there is a legal holiday between January 1st and February 19th, then the deadline can be extended accordingly to the next business day. However, we always recommend sticking to the deadline without taking any legal holiday in January or February into account.

What can be challenging with the annual update?

The annual update production cycle can be challenging in many areas:

Scope management. Overall, the scope of the annual update must be the first and foremost task to be done, early in January. The annual update must be done on all share classes for which performances for at least on full calendar year (real or simulated) can be shown. This means that share classes launched in 2020, where the Fund Manager does not want to show simulated performances, may be excluded from the scope of the annual update of 2021. The monitoring of the KIIDs for these share classes launched in 2020 shall continue its normal life but will not be affected by an update of performance as long as there is not a full calendar year of performances to be shown.

Computation of 2020 past performance. this is the main task to be done in relation to the annual update and is a mechanical computation of the net performance of the share class or the fund from 31 Dec 2019 to 31 Dec 2020, with an assumption of the dividends paid during the year being reinvested into the fund.

Consideration of inactivity periods during 2020. When the share class of the fund had one or more periods of inactivity during the year, then the following question is to be considered: Do we, as a manufacturer, show either a) no performance for 2020 in the KIID and provide a written explanation instead, or b) show the 2020 performance in the KIID and simulate the performance during the dormancy period based on a benchmark?

Material changes other than past performance to be incorporated in the KIID. Very often the annual update is also a time where other changes may be incorporated, being driven by changes in the regulation or changes triggered by a modification of the prospectus. We would tend to consider the implementation of these changes at the same time as the KIID annual update production, to make sure the filing to home and host regulators is being done once and for all.

Is this year’s annual update any different?

In terms of document production, the processing remains the same as the previous years, even though the year that just ended may have been tough for many organizations and might have impacted the net performance of the funds.

Should you already start to think about the move from KIID to KID?

As of today, the grandfathering for Asset Managers allowing them to produce and issue a UCITS KIID in lieu of a PRIIPs KID will come to an end on Dec 31, 2021. This means that this year should be the last year of having to handle an annual update of the KIIDs and that a PRIIPs KID will have to be produced from Jan 1, 2022. Therefore, the time to start thinking about the move to the PRIIPs is now.

However, there is currently no approved regulatory technical standards (RTS) available at the level of European Supervisory Authorities, which means that product manufacturers do not have any guidelines as to how to produce the PRIIPs KIDs by Jan 1, 2022. We expect to have draft RTS issued by the ESAs by end of January, with a final version to be ratified by the EU Commission one of two months later, as the earliest.

This means that the implementation timeframe, if the deadline is maintained, will be very limited and will put significant pressure on product manufacturers to get this implementation over the line within deadline.

There is also a possibility that a further extension of the grandfathering period is granted, which would extend the use of the UCITS KIID for a longer period. This, if applied, would be a welcomed relief for market participants in the fund managers who are already under huge regulatory pressure.

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How to Take Control of Retirement Planning in 2021 and Beyond



How to Take Control of Retirement Planning in 2021 and Beyond 3

What does your dream retirement look like? What kind of lifestyle do you imagine? Maybe you’re planning to travel more, or perhaps you’re thinking of going back to school. Maybe that passion for photography could become a new business, or perhaps you’re simply looking forward to taking a break and enjoy spending more precious time with those you love.

Whether retirement will see you bungee jumping in South Africa, or trampoline jumping with the grandkids, Steve Pennington, Head of Wealth Planning at Private and Commercial Bank Arbuthnot Latham discusses how planning your retirement now will help bring those dreams the chance of becoming reality.

There are so many “what if’s” and unknowns to take into consideration that retirement planning can feel daunting.  What kind of retirement lifestyle can you actually expect? What if I want to (or need) retire early? What if I or my partner needs care in older age? What if my children or grandchildren need financial support? What if I want to buy a Jaguar E Type? What if my investments fall?

2020 has only added to these concerns, so what can you do to feel more in control?

Understanding what you want to achieve is the first step. Is the key goal to maintain your lifestyle in retirement, or do you have different priorities? By looking at your cash flow today and modelling a range of anticipated cash flow scenarios in retirement, you can immediately visualise your future financial position. Through building in key personal milestones such as a change in lifestyle, travel, downsizing, buying that car, or selling a business, you can build a clearer of picture of what you’ll need and when.

More than 10 years until retirement

Look at your current later life provisions. How do you intend to use your non pension assets in retirement? How and when do you actually intend to use your pensions? Are you planning to stop working before you’re eligible to access your formal pensions? Do you have a personal or company pension? If you’ve worked for a number of companies, you may have several. Have you considered consolidating your pension arrangements? Have you checked how your retirement funds are performing, and if your circumstances and ambitions have changed since you last reviewed them?

If you are earning more than you spend, it’s also worth thinking about what you’re doing with your excess income. Inflation erodes the value of savings over time, meaning your purchasing power in the future is reduced. Of course, everyone needs cash reserves, but could you invest more now, using tax advantages, so that your retirement ambition has a more certain outcome?

Less than 10 years until retirement

If you’re approaching retirement, you probably already have a rough idea of your retirement plan. It’s also likely that you’ve experienced some investment turmoil over the years which may have caused unease and uncertainty. When you have financial plans in place it can be tempting to just stick with your current investment arrangements, whether they are performing or not, or perhaps you have been thinking about making some changes but need guidance and advice. Professional advice at this time can help you feel in control of your finances and your future.

If you’re feeling unsure about the state of your investments, or how your finances are arranged, it’s important to find an adviser who can review your circumstances and discuss suitable options in order to address your objectives. As you near retirement, it’s even more important to review your appetite for risk, capacity for loss and complete a financial health check to assess whether you are on track.  Often Investors are happier to take fewer risks as retirement approaches, but this is not always the best course of action. Consider that pensions may need to provide you with income for the rest of your life.

Already retired

If you’re already retired, you’ll already be using your assets to fund your lifestyle. It’s certainly worth reviewing how you are using your assets to provide income. At this stage of life, many people’s financial goals change from investing for growth to investing for income. However, as people live longer, retirement is often broken into different stages, allowing you more control over how you structure your finances and access your wealth at a future date to deliver different benefits at different times.

To find out if your retirement dream is achievable take this short quiz here:

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