In collaboration with GMT Capital, Clement Ashley Consulting recently held a nation-wide capital market investors conference in ten cities. This is the slideshow of the presentation I made at the conference.
1. STRATEGIES AND SYSTEMS FOR
MANAGING INVESTMENT RISK
Presented by:
Ijeoma Rita Odeigah
CLEMENT ASHLEY CONSULTING
2. Investment Types
Fixed Income securities
T. Bills
BA’s
C.Bills
Bonds
Equities
Quoted
Unquoted
Derivatives
Options, Swaps, Forwards
Real Estate
Property, REIT’s, Mortgages
FX
Investors Conference 2008 2
3. Investment Risks
Bonds
Credit risk
Property
Fixed Income Investments
Concentration risk
Bonds
All assets
Mortgages etc
Inflation risk
Liquidity risk
Fixed Income Investments
Property
Bonds
Equities
Interest Rate risk
Unquoted
Implied in FII, Bonds et al
Quoted
Market risk Devaluation
All local currency assets
Equities
Regulatory risks
Quoted
Unquoted
NPC, Tax, Accounting
Investors Conference 2008 3
4. Investment Policy Statements
An investment policy is the blueprint for
the prudent and effective management
of your investment associated with a
given risk appetite. An effective
investment policy underscores the link
between the investments (assets) and
the risk tolerance and return
expectations of the investor.
Investors Conference 2008 4
5. Contents of the Investment
Policy
The objectives of the investment
A description of the sources of funds and any
constraints
Risk tolerance of the investor, organization or
(members)
Liquidity/marketability requirements
Asset allocation mix targets and ranges
Portfolio Management guidelines and limits structure
Performance goals and evaluation criteria
Accounting, regulatory and tax rules applicable
Procedures and Authorities
Investors Conference 2008 5
6. Asset allocation mix targets
and ranges
The items preceding asset mix in the slide
above more or less dictate what asset mix
targets should be set. Individual targets need
to be set for the following
Liquidity (based on purpose)
Contribution or mix of assets
Tenor for asset classes
Matching measures based on ALM techniques
adopted
Credit risk (incl. required diversification)
Investors Conference 2008 6
7. Asset allocation mix targets
and ranges (cont’d)
The accounting method on which the targets
are set should be clear
The end result is a portfolio policy which
could represent
A long term asset mix for the portfolio
A risk free or risk minimizing portfolio
A basis for analyzing the investment manager’s
performance
Investors Conference 2008 7
8. RISK MANAGEMENT TOOLS
RISK MGT. TOOL
INVESTMENT RISK
Credit ratings and limits
Credit risk
Fixed Income Investments
Bonds
Mortgages etc
Liquidity risk Tenor limits
Property
Equity
Investment limits by
Market risk
asset type, sector,
Equities
industry, margin able
Bonds
limits, stop loss limits
Property
and 4 triggers
Investors Conference 2008 8
9. RISK MANAGEMENT TOOLS
cont'd
INVESTMENT RISK RISK MGT. TOOL
Concentration risk Diversification
All assets
Inflation risk Cap. Appr. Products
Fixed Income Investments
Bonds
Derivatives
Interest Rate risk
Implied in FII, Bonds et al
FX denominated products
Devaluation
All local currency assets
Regulatory risks Compliance procedures
and limits
NPC, Tax, Accounting
Investors Conference 2008 9
10. Asset mix to suit risk appetite
ASSET MIX
SAMPLE PLANS
Property
LTFII
Redundancy
STFII
Gratuity
Savings
Equity
NPC
PLAN TYPE
Investors Conference 2008 10
11. RISK MGT. REPORTS
Cashflow statement
Portfolio distribution by type, industry or
sector compared with target asset mix
Portfolio return by type compared with
benchmark
Portfolio credit risk profile compared with
target
Risk return ratio vs benchmark
Excess over limits exception report
Real return (inflation adjusted) reports
Investors Conference 2008 11
Et al
12. MARKET INFORMATION
Analysts Stock Service (daily)
Economic watch
Companies and markets
Daily stock update and stock market
indicators
Capital market
Investors Conference 2008 12
