Appleton Greene – Investment Consulting

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Appleton Greene & Co Global – Improving ROI by adding assets and strategies


Investment Consulting by Appleton Greene & Co Global London New York Zurich Moscow Dubai Banking & Financial Services Insurance Technology

Our investment consulting service is oriented towards institutional investors and is specific, well-planed, tested, workflow-based, technical, highly-quantitative, yet easy to understand. The service improve aspects of investment management processes and the end results are: (a) improving performance – increasing return on investments (ROI) and Sharpe ratios, reducing risk; and (b) increasing business – assets under management (AUM) and assets under administration (AUA). We advise on adding exposures to new markets and geographies in the emerging markets (because of attractive investment potential and/or because such funds can be preferred by new investors in these locations) and to alternative investments in the developed markets, following a consultative, balance-sheet approach in relation to existing fund portfolios. For funds that wish to stay close to their core strategies, we offer marginal portfolio improvements by smart beta and portable alpha strategies and portfolio optimization (improving risk/return balance while keeping close to the existing investment policies). We may help on designing new investments by delivering targeted and optimal exposure to selected investment factors. For funds that wish to explore opportunities in new markets and alternative strategies, we are providing exposure to new hybrid and exotic strategies with low correlations to traditional asset classes this improving risk-adjusted returns and taking advantages of roll-down, carry, reinvestment effects, harvesting factor and option premiums and collecting coupons and dividends. We can provide covered option overwrites strategies for both equity long/short strategies (such as, market neutral, short bias and long bias 130/30 portfolios) and for US and EU fixed income portfolios (IG and HY using credit swaptions and credit index swaptions). For insurance companies, we offer derivatives overlays strategies for managing risk/rewards of the whole balance sheets and specific hedging strategies for white-label pension policies with protection (e.g., CPPI, iCCPI, variable annuities, target date funds, indexed universal life). – Appleton Greene & Co Global

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Reducing risk and automated risk systems

Appleton Greene & Co Global – Risk management is an integral part of any portfolio management process. We advise on risk management – measuring and monitoring risk exposures and mitigating large risk exposures by following a structured approach, comprising of establishing rules, metrics, systems and governance processes, writing risk management policies and documents. We may help both with internal implementation of automated risk management system and with assessment and purchase of vendor solutions. Internal implementation option is a multi-factor Monte Carlo-based cross-asset risk management framework featuring co-dependence of risk factors and tail risk and can assist on implementation of heavy-tailed, skewed VaR, ETL, PFE and CVA framework and limits at both transaction and portfolio levels, modelling roll-down, carry, amortization and reinvestment effects. The end result is asymmetric heavy-tailed market, credit and liquidity risk management. We advise on calculation of sensitivities by shifting risk-factors, curves and revaluation of investment portfolio. Delta, DV01, CS01, OAS, correlation sensitivities are important in investment management. We advise on developing limits on sensitivities and monitoring these limits. Our approach is applicable to fixed income, equity, alternative investment and mixed portfolios and for funds following both absolute return and relative value strategies. Finally, we help on practical risk management, maintaining risk parity between asset classes and tail-risk hedging. At times when market direction is uncertain or volatile, it might be beneficial to change the balance between asset classes and increase the weights of safe assets and to reduce the weights of performance assets. Overall portfolio risk reduction is done by adding assets or derivatives overlay solutions with low/negative correlation to the risk factors in existing investment portfolios and performing portfolio optimization aimed at improving Sharpe ratios and risk-adjusted returns and reducing tail-risks. We also advise on structural, process and system improvements. The analytical risk measures are complemented by stress testing and historical simulation.

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Generating income – fixed income portfolio solutions

Appleton Greene & Co Global – Generate fixed income is challenging in the current low interest rate environment. In emerging markets, we can help to identify, explore and select fixed income investment opportunities (mainly sovereign and corporate IG and HY bonds) in selected markets – CEE, SEE, Russia, LatAm, GCC. In most cases, investors are primarily interested in low latency access to assets with high potential returns, but we can propose also more complex directional and relative-value investment ideas (e.g., steepeners, flatteners, factor investing, exploiting CDS asset swap spread basis opportunities where available, using swaps to construct factor-neutral bond portfolios with positive expected returns). In developed markets, we can advise on alternative fixed income investments– preferred stocks, distressed debt, convertible bonds, COCOs, catastrophe bonds (CAT), ABS, MBS, CMBS, credit derivatives. The advantages of preferred stocks are superior Sharpe ratios, while for CATs are that they have low correlations with traditional investment classes. Structured credit derivatives such as CDS and Nth-to-default basket swaps allow expressing specific investment views more directly. We advise on single-issuer CDS curve trades and on relative-value trades between different names. Overwrite strategies with credit swaptions are available for US and EU and with credit index swaptions for EU portfolios, harvesting option premiums. For specific issuers, we can assess credit and capital structure arbitrage strategies as well as convertible arbitrage strategies. In the current environment it may not be prudent to warehouse substantial duration risk and for index bond funds smart beta fixed income strategies seems a viable alternative for improving returns over benchmarks such as Barclays Aggregate Bond Index. This entails constructing FI portfolios with direct exposure to selected factors (persistent drivers of investment returns) with substantial risk premiums (e.g., forward premium yield curve biases). We can assist in identifying such factors and their premiums and delivering exposure to these factors.

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Generating growth and principal protection – equity portfolio solutions

Appleton Greene & Co Global – We provide a variety of equity portfolio investment solutions – emerging market equities with high growth potential and low correlations to developed markets, using option overwrites and factor investing, harvesting option and factor premiums, derivatives overlay portfolio solutions, derivative products for correlation and dispersion strategies. Constant proportion portfolio Insurance (CPPI) can be implemented with derivatives ensuring principal protection or via dynamic rule-based trading, rebalancing the weights of performance equity and safe assets. This is a short-Gamma strategy and dealers typically provide hard principal protection, taking on gap risk. A major challenge in evaluation of complex equity strategies is incorporating price jumps, which are associated with events such as earning reports, dividend payments and defaults.

Appleton Greene & Co Global – In relation to hedging of equity portfolios, passive hedging is performed by diversification, while active hedging – by adding positions to neutralize exposures to specific risk factors. The main issues are whether derivatives and leverage are allowed for the fund. Without derivatives, investment portfolios can be hedged by adding positions with low or negative correlation to the assets in the portfolio such as specific commodities, trading-strategy indices, ETFs. Some hedging examples with derivatives are: (a) selling index futures; (b) option-based portfolio insurance (OPBI) – purchasing OTM index Puts, cap Puts, digital Puts; selling OTM index Calls, digital Calls; using best-of, worst-of equity basket options to cheapen insurance; (c) controlling pin risk, where the payout is either zero or one, becomes a concern if the asset trades near the strike close to expiry. Spreading the risk across several expiries (using option strips in time direction) is another way to mitigate pin risk and improve liquidity and pricing; (d) tail events can be hedged by purchasing deep OTM Put options; (e) short-term spikes in volatility can be hedged with VIX options or other types of volatility options.

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Regulatory compliance and change programs

Appleton Greene & Co Global – We help our clients with the interpretations and implementation of new regulations impacting the investment management, banking and insurance industries – Dodd Frank, Volcker Rule, FATCA, MIFID II, Basel II, Basel III, CRD IV, AIFMD, EMIR, and Solvency II.

Appleton Greene & Co Global – Our service is based on experience with several change programs for implementing new banking (Basel) and insurance (Solvency II) regulations. Solvency II uses the same three pillars concept as Basel II. Diversification of risk lies at the core of the insurance business, and the extent of diversification varies widely from firm to firm. While Basel II recognizes some implicit reduction in risk through diversification, any significant reduction in calculated regulatory capital would require very strong justification. Solvency II takes this recognition of risk reduction through diversification one step further. It allows insurers to recognize the effect of risk mitigation techniques in their actuarial models as long as counterparty, credit, market, and other risks are properly captured. The new solvency regime contains the technical provisions and two capital requirements with different purposes and calculated differently: the solvency capital requirement (SCR) and the minimum capital requirement (MCR).

Appleton Greene & Co Global – We use advanced quantitative methodologies such as skewed, heavy-tailed Monte Carlo simulations, extreme value theory, multi-factor regression analysis, and GARCH models. For insurance Solvency II programs, we compute expected tail losses and capital requirements on the portfolio for market, credit and concentration risks. For banks, we offer risk and regulatory advisory, which includes Basel II and Basel III program frameworks and implementation, including PFE, EE, EPE, LGD, incremental risk charge (IRC), default risk charge (DRC), economic capital (EC), CRD IV, comprehensive capital analysis and review (CCAR). For credit risk measuring, monitoring and hedging, we advise on PFE, CVA, DVA, BCVA, FVA and cVaR. In relation to financial reporting, we advise on implementing the IFRS9 framework for reporting.

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Derivatives overlay solutions

Appleton Greene & Co Global – Derivative overlays are positions in financial derivatives that can be added to a pension fund, mutual fund, hedge fund or fund of hedge fund portfolio in order to change the systematic exposure of the fund or to gain exposure to new sectors and markets. The derivative overlays have become extremely important devices in pension fund and fund of hedge funds portfolio management, mainly due to the following two main uses: (a) Hedge (reducing) of systematic exposure; (b) Increase of systematic exposure in portable alpha applications; (s) maintaining risk parity between asset classes.

Appleton Greene & Co Global – Derivatives overlays allow fund of fund managers for adding or reducing exposures to sectors and markets, by combining investments in funds with investments in derivatives. These derivatives can be on existing or new funds or on instruments from the existing or other asset classes such as interest rates, equity indices, currencies, inflation, commodities, credit default swaps. Overlays can be used for managing slippage – portfolio inefficiencies that lead to lower return or bigger risk. They can be used also to reduce large exposure to systematic factors, which does not add much value to the fund’s performance. Alternatively, overlays can be used to add synthetic beta exposure to high portable alpha applications such as alternative asset investments and investments in real estate by, e.g., entering in index futures contracts or call options on index futures. Derivative overlays can be used to combine multiple hedge fund strategies in an integrated package.

Appleton Greene & Co Global – Examples of derivatives overlay for FX risk are instruments such as FX forwards (outright, NDFs, enhanced and participating), FX options and strips of FX options while derivatives overlay for credit risk can be implemented with CDS, index CDS, credit swaptions and Nth-to-default basket swaps.

Appleton Greene & Co Global Mr Valchev

Dr. Valchev PhD MSE BBA is an Accredited Senior Consultant (ASC) at Appleton Greene

Appleton Greene & Co Global – Dr. Valchev is an approved Senior Consultant at Appleton Greene and he has experience in finance, information technology and globalization. He has achieved a Doctorate of Financial Economics, a Master of Science in Economics and a Bachelor of Business Administration. He has industry experience within the following sectors: Banking & Financial Services; Consultancy and Technology. He has had commercial experience within the following countries: Switzerland; United Kingdom; Russian Federation; United Arab Emirates and United States of America, or more specifically within the following cities: Zurich; London; Moscow; Dubai and New York NY. His personal achievements include: conducted fundamental and quantitative research; developed financial trading strategies; introduced trading systems; developed derivative products valuation libraries and introduced risk management platforms. His service skills incorporate: investment management; risk management; emerging markets; derivatives trading and portfolio insurance.

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20 Consulting Service Examples

Appleton Greene & Co

There are currently some 650 Accredited Consulting Services (ACS) provided by Appleton Greene worldwide. Here are 20 examples.

01. Business Administration
02. Business Development
03. Business Optimization
04. Crisis Management
05. Customer Development
06. Energy Management
07. Entrepreneurial Leadership
08. Investment Consulting
09. Marketing Optimization
10. Marketing Transformation
11. Process Excellence
12. Product Management
13. Risk Analysis
14. Soulful Leadership
15. Sustainable Development
16. Transitional Growth
17. Value Innovation
18. Retirement Planning
19. Change Strategy
20. Product Lifecycle

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