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Stay Agile in Dynamic MarketsOffshoring to optimize Portfolio Analytics,

Data Management and Digital Marketing functions

Wednesday, March 1 2017 New York Hilton Midtown

Confidential and proprietary – Not to be distributed without the prior written consent of Moody’s Analytics Knowledge ServicesConfidential and proprietary – Not to be distributed without the prior written consent of Moody’s Analytics Knowledge Services

Amit Sinha

Portfolio Strategist

Confidential and proprietary – Not to be distributed without the prior written consent of Moody’s Analytics Knowledge Services

Agenda

Trendsthat are driving the need for more agile analytics in asset management

Sampleof tools, solutions and strategies being adopted

Case studieson improving processes and utilizing new and legacy systems

Address design, technology and behavioral considerations

ObjectiveHOW 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%

Assumedportfolio return

Past 30 years Growthrecovery

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 solutionsForecast: 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

158288

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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Confidential and proprietary – Not to be distributed without the prior written consent of Moody’s Analytics Knowledge Services

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 analyticsThere 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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