*With many businesses now working from home, we have introduced virtual learning so we can continue to deliver high quality training to the financial community as we accommodate this new way of working. Since 2003, Fitch Learning has been delivering virtual learning programs to clients and learners. Building on this extensive experience, we are now able to offer a range of public courses in a live online environment, whilst ensuring you will get the same value as you would in our classroom courses.
Funds, Hedge Funds and Asset Managers
The overall goal of this course is to provide participants with a structured analytic framework for the credit analysis of retail funds, alternative / hedge funds and asset managers.
This course gives 16 CPD hours.
Who should attend?
Commercial and investment banking professionals responsible for credit risk management and origination. The course is also appropriate for a wider audience of risk managers, consultants, bankers, regulators and other professionals who need to understand the key risk issues of the asset management industry.
Introduction to a structured approach to fund and fund manager analysis.
- Purpose of transaction and sources of payback: Who is the counterparty? What assets or derivatives are being financed? How will the transaction be settled or the repaid at maturity?
- Risk analysis approach: Operating environment, financial fundamentals and management
- Exercise: Purpose and payback funds and fund managers
- Information sources: Prospectus, financial and portfolio statements
- Fund ratings: Rating agencies, Morningstar and other ratings
Differentiates funds types encountered in the industry by their structural, legal and jurisdictional features.
- Structure and legal status of funds and managed accounts; partnerships, corporations, segregated accounts
- Types of fund, financial products used and risk profile – mutual funds (incl. UCITS, ICVCs, FCPs, OIECs and SICAVs), managed accounts, tracker and exchange traded funds (ETFs), smart beta, umbrellas, closed-ended funds and investment trusts, REITs, private equity, fund of funds, master feeders, hedge funds, pension funds
Differentiate the investment and trading practices and risk profile of different retail and alternative / hedge fund strategies.
- Investment strategies: Risk profile of strategy, policies, practices and restrictions
- Goals: Absolute vs. benchmarked returns; Alpha vs. beta; Minimizing correlations
- Fee structures: Upfront and performance; high water marks
- Techniques to optimize risk adjusted returns: Leverage, derivatives and short-selling
- Traditional strategies: Fixed income (money market, bond), equity and growth, value and Multi-asset strategies
- Exercise: Identifying risk profiles and trading approach of different alternative strategies
- Sources of bias in indices
- Uncorrelated returns, volatility vs. return, drawdown statistics
- Risk and return characteristics of alternative strategies:
- Global Macro
- Long / short equity
- Emerging Markets
- Equity market neutral
- Fixed income arbitrage
- Convertible arbitrage
- Event driven: distressed debt
- Event driven: risk / merger arbitrage
- Managed futures / Commodity Trading Advisers
- Directional vs. Relative Value strategies
Review macro, competitive and regulatory drivers of the retail and alternative/hedge-fund sectors.Macro and competitive drivers
• Competitive drivers in the industryRegulation and supervision
- Regulation and supervision by region
- Mutual funds – investment and leverage limits, disclosure
- Fund manager regulation; capital adequacy, licensing, business practices
- Money Market fund reform in EU and US: CNAV, VNAV, LVNAV
- Exercise: Assessing regulatory framework: offshore registrations, listings, fund manager domicile
- Impact of regulation:
- UCITS and Alternative Investment Fund Managers Directive in the EU
- 1940’s Investment Companies Act and Dodd-Frank Act in the US
- Proposed EU Investment Firms Regulation (IFR) and NBNI G-SIFI systemic risk proposals
Benchmark key performance indicators for different types of fund to identify both strong and weak performers.
- "S": Size – reviewing size, diversification and market position of fund
- "M": Market risk – volatility measures e.g. standard deviation, VaR
- "A": Asset quality – liquidity and valuation of assets, haircuts
- "L": Liquidity – managing redemption risk
- "L": Leverage – use of financial and derivative/synthetic leverage, UCITS leverage restrictions
- "P": Performance – bench marking performance. NAV measures, information, Sortino and Sharpe ratios
- Case study: Assessing the financial strength a liquid alternative fund using SMALLP approach
Early Warning Signals
Quantitative and qualitative early warning signals for funds and historic causes of failure.
- Early warning signals of fund and alternative fund credit issues
- Summary of major hedge fund failures, causes and common themes
- Exercise: Early warning signals of a failed alternative fund
Evaluate the roles and responsibilities of key parties to a fund and assess the financial strength of a fund manager.
- Roles and responsibilities of various parties: Manager, trustee, directors, administrator, custodian etc.
- Risk profiles of different business models: Institutional, retail, wealth management.
- Due diligence fund manager: Business structure, independence and controls, investment process, risk management, communication
- Exposure types to a fund manager: Block trading, risk management, leverage
- Fund manager as liquidity and capital provider to a fund
- Purpose payback: Why do fund managers borrow and how do they service debt
- Financial analysis: performance measurement; cash-flow analysis; balance sheet strength and rating agency benchmarks
- Case study: Assessing an international fund and hedge fund manager
Assess exposures to a fund/hedge fund and appropriate documentary protections for uncleared / bilateral Over the Counter Trades (OTC) trades.
- Assessing the appropriateness of the structure in terms of amount, maturity
- Ranking: Establishing and maintaining a senior position
- Collateralization of uncleared OTC derivative trading transactions, initial and variation margin
- Documentation safeguards: Close out and settlement netting, collateral, unsecured thresholds, covenants, break clauses, MTM resets, guarantees and Central Counterparty settlement overview
- Managing the default process
- Exercise: Calculating margin collateral, quantitative and qualitative considerations
About Fitch Learning
*With many businesses now working from home, we have introduced virtual learning so we can continue to deliver high quality training to the financial community as we accommodate this new way of working. Since 2003, Fitch Learning has been delivering...
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