Service objectives


The following list represents the Key Service Objectives (KSO) for the Appleton Greene Investment Consulting service.

Appleton Greene & Co Global 1

Investment Strategies

 The primary objective is to expand the set of investment opportunities by introducing additional trading strategies with attractive risk/reward profiles. In many cases, investment managers are interested in trades with low or negative correlation to existing portfolios and we can propose such trades, some of which can be expressed directly with derivative products or alternative investments. On the quantitative investment strategies side, we offer a variety of stand-alone trading strategies supported by statistical analysis. The portfolio return is enhanced by monetizing such items as factor premiums, dividends, coupons and option premiums. Example strategies are equity short/long – relative-value, dispersion, correlation, enhanced equity; currencies – carry, value and momentum; commodities – carry, momentum, seasonalities, curve, roll-down and volatility; fixed income – directional (corporate – investment grade, subordinated, high-yield, emerging markets sovereign and corporate) and relative-value, curve, convexity, roll-down, carry (single and cross-asset), credit and capital structure arbitrage (convertibles, covered bonds, COCOs); derivatives – relative-value, curve trades, volatility, smile/skew and correlation, interest rate cap/swaption arbitrage; asset allocation strategies. What is unique in our proposition is that the risk and rewards of these strategies can be analyzed quantitatively with our hybrid cross-asset Monte Carlo methodology both stand-alone and at portfolio level. In relation to investments and portfolio analytics, we help with asset allocation, portfolio optimization, portfolio risk analysis, overlays, hedging tactical and strategic asset allocation, scenario testing. Some examples of investment structured products that are used for complex trading strategies are Cap Calls, Cap Puts, Digitals, Multi-Asset Range Accruals, Multi-Callable Range Accrual Notes, Accumulators/Deccumulators, TARF, Shark-Notes, Equity Booster Swaps, Synthetic Convertibles, Reverse Convertible Baskets (with trigger barriers). On securities selection side, we can help investment managers to expand their investment universes by adding exposures to investment opportunities in developed – US, EU Core, Peripheries and selected emerging markets – CEE, SEE, Russia, LatAm and GCC. The Investment Consulting service provides advise generally on the markets, sectors, securities and strategies, alternative investments and also on the management and optimization of existing portfolios in these markets.


Appleton Greene & Co Global 2

Factor Exposures

 Our Investment Consulting services start with performance attribution analysis of an existing client portfolio with the main objective of improving investment performance, which is done primarily by exiting some inefficient allocations and executing additional trades to deliver desired exposures to set of investment factors with attractive risk premiums. These factors are broad, persistent drivers of asset returns and could be sub-classified as macro, sector, country and style factors. Identification of factor exposures for a portfolio is based on factor and attribution analysis and we perform also what-if analysis to assess the effects of adding new positions. For instance, for index funds, we consult on smart beta constructions that replicate systematic exposure of the index by using asset with lower volatilities and thus improving return versus risk tradeoff. Obtaining the desired factor exposures can be achieved swiftly and efficiently by executing deals in liquid alternatives and derivatives. This factor investing approach is suitable for investment managers with both asset allocation style and securities selection style. In addition, we offer bespoke portfolio construction containing directly the desired exposure levels to the preferred set of risk factors, which is usually realized by using liquid alternatives (e.g. ETFs, trading strategy indices, delta-one certificates), derivatives and structured products. A second investment objective is increasing diversification, which is achieved by adding new assets, and thus controlling the factor exposures, but sometimes is it more directly and efficiently realized by using derivatives overlay. Derivatives overlays allow fund of fund managers for adding or reducing exposures to factors (e.g., sectors, styles and markets), by combining investments in funds with investments in derivatives. These overlay solutions 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. Third, we use factor models also for asset and liability management (ALM) and liquidity management at balance-sheet level.


Appleton Greene & Co Global 3

Enhancing Returns

 The Investment Consulting service provides return-generating investment ideas in developed and selected emerging markets in the traditional asset classes, specific to the return drivers for each asset class. This is based on our expertise in fundamental, technical and quantitative research (strategies). Proposed quantitative trading strategies are applicable for both developed (US, EU Core, Peripheries) and emerging markets, where we have substantial experience in the regions of CEE, SEE, Russia, LatAm and GCC and can advise on portfolio construction in the traditional asset classes and on available alternatives, overlays and hedges. The desired risk/rewards profile is achieved also by smart beta and portable alpha strategies, which are well suited for indexed and passive funds. The strategies are with various degrees of risks and can be combined to an existing investment portfolio or can be executed stand-alone. The objective is to enhance returns by using synthetic constructions which so far, because of their technical complexities, have been out of reach. We advise on strategies with derivative overlays, which 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, call options on index futures or enhanced indexing. Derivative overlays can be used to combine multiple hedge fund strategies in an integrated package.

Appleton Greene & Co Global 4

Risk Management

 One of the main objectives of our service is reducing financial risk by advising on portfolio insurance solutions, which can minimize volatilities of portfolio returns. This is achieved by adding positions with low or negative correlations to the existing portfolios. In this way, it is possible to offset market, equity, interest rate, credit spread and swap spread risks. This portfolio insurance works well in periods of market uncertainties when the preservation of capital is paramount. It is important to note that for exact risk quantification, an automated risk measurement and management platform is necessary and we can assess the cost and benefits of a risk platform and can advise on its design and architecture. In the insurance space, for retirement savings plans annuity businesses, we can consult on specific protection overlays, which can be activated. We help with the development and implementation of risk governance policies, risk and concentration limits for investment in specific asset classes, issues, sectors, geographies and countries. On market risk side, we help with implementation of VaR, ETL measurement, limits, sensitivities calculations (Delta, DV01, duration, CS01 and OAS sensitivities are very important in investment management) and design and implementation of hedging policies. For private banks, we help with balance-sheet management of portfolios of retail structured products by hedging portfolio sensitivities to the risk factors. Our approach is based on advanced statistical and econometric models. For insurance companies, we advise on implementing simulation engines to math assets and liabilities and satisfy regulatory under Solvency II. For depositary institution, we offer risk and regulatory advisory, which includes Basel II and Basel III frameworks and implementation (PFE, EE, EPE, LGD, IRC, DRC, Economic Capital, CRD IV), CCAR. For credit risk measuring, monitoring and hedging, we advise on PFE, CVA, DVA, BCVA, FVA and cVaR . We help with implementing the IFRS9 framework for reporting. We do stress-testing of our VaR models in order to identify situations that could create both extraordinary and plausible losses, following examples of previously defined scenarios which meet regulatory requirements. The requirements for the market risk stress testing are a set of simple parallel and inverting/steepening scenarios (in additional set of more complex scenarios can be required, these will be the combination of historical scenarios and complex term structure shifts; or configuration a contingent loss matrix, where the maximum loss under a fixed set of scenarios will be limited).


Appleton Greene & Co Global 5

Technology Change

 This objective aims to enhance the development of systems of strategic investment planning and management and the development of documentation. Specifically, we can help with design, description and analysis of technology requirements for investment management processes. This is necessary for trade booking, position evaluation and management, measuring, monitoring and mitigation of market risk. This service objective is to advise on technology improvements, toolkits for specific purposes and additions to the existing client infrastructures. We can consult on internal development of libraries for product and strategies evaluation and on developing of automated risk and performance management systems up to the levels of business and functional specifications. We can also make analysis and recommendations for purchasing of commercially available vendor solutions for trading, market access, return attribution and risk management. The second stage in formation and execution of an Information Technology Strategy Program (ITSP) is the analysis and assessment of the current state of strategic alignment between the investor’s established business strategy and existing IT services and operations. From the perspective of that current state as-is for the client at that time, a future-state projection is created to express the vision, purpose, value, and commitment to move toward a holistic enterprise strategy wherein business and technology strategy are very tightly coupled to achieve optimum outcomes for the corporation or organization. The Current State Analysis and Assessment element of the ITSP consists of: (1) a ‘RACI’ (Responsibility, Accountability, Consult, Inform) matrix of stakeholder and participant roles; (2) a ‘SWOT’ (Strengths, Weaknesses, Opportunities, Threats) analysis; (3) a ‘gap’ analysis review and assessment of fit (or lack thereof) between legacy or current technology relative to explicitly or implicitly stated business strategy; and, (4) a benchmark survey of the client’s IT services and operations value, performance and quality. The Future State Projection element of the ITSP consists of: (1) creation of an IT Service and Operations portfolio and catalogue; (2) definition of key performance indicators (KPIs), delivery metrics and success criteria; (3) specification of business and technology realignment objectives with refinement of Program Baseline deliverables as appropriate; (4) targeting and prioritization of strategic business outcomes and benefits to be achieved through holistic strategy alignment.

This service is primarily available to the following industry sectors:

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Banking & Financial Service

Increasing regulation and competition are decreasing the profit margins in both investment and retail banking. With recent advances in information technologies, processing of information increased and the processes have become more automated and digitalized. It is important to have a clear view on the key drivers of performance and on the exposure to the main risk factors. Financial markets are becoming increasingly globalized, the transaction costs are decreasing and the restrictions to cross-border flows are eliminated. All these trends call for increasingly automated solutions for dataset management and measuring risks and rewards. Investment managers are making decisions very fast and the speed of execution became a major issue. Many complex derivative products are moving to organized exchanges where they are traded more transparently and are cleared and settled. Electronic trading is now becoming dominant and the share of retail traders is increasing. There is a new trend towards using more sophisticated products in the derivatives space. New generation of exotic option products on dividends, volatilities and correlations is emerging.


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Insurance

Insurance companies are divided among several sectors – life, property, casualty, health, and financial. One of the mainstreams in life insurance business is the distribution of retirement savings solutions such as IRAs, mutual funds and brokerage as well as annuities. Annuity retirement products are fast fast-growing areas in the developed markets, where, in the US, insurance companies offer fixed, index-lined, variable- and income annuities, while in the EU are popular unit-linked life insurance products. There is a growing demand for such products, but hedging of investment risks remains a major challenge for the issuers and some companies stopped issuing variable annuities. Life insurance is liability-driven as the insurers take on lapse, longevity, and biometric risks and new regulations are implemented to assure that insurance companies’ assets are sufficient to cover their liabilities. To comply with Solvency II, insurance companies implement complex Monte Carlo simulation engines such as these used previously by the commercial banks to comply with Basel II. One of the objectives of the Solvency II project is to establish a solvency system that is more appropriate to the real risks facing the industry by avoiding cross subsidization and hidden reserves. It also intends to give incentives to insurance companies to improve their internal risk management and assessment procedures through the enforcement of risk-adequate pricing of insurance products, while taking into account the different needs for harmonization not only at European and international levels, but also across the financial sectors. The ultimate objectives of the new regulation are: (1) to protect policyholders; (2) to ensure harmonization of the rules at EU level; and (3) to ensure a level playing field within the insurance sector and across financial sectors. The last two objectives have not been achieved by the current solvency rules. The Solvency II project was divided into two phases. The first phase involved the overall design of the system and the second one was oriented to the technical detailed rules filling the structure.


Technology

Information technology is playing a key role in the financial services industry. The processes are becoming more digitalized. Many investment funds are distributing their products over the Internet. Mobile applications are developing for transactional banking, but soon will follow for more complex financial products. The speed of processing large datasets is increasing. All these advances emphasize the need for more automated technology solutions for trading in complex derivative strategies and algorithmic trading spaces. Now there are professional trading systems that allow for backtesting and optimization of a trading strategy on a large dataset with a few lines of computer code. Many institutions are purchasing vended solutions for performance attribution and risk management. Only the most sophisticated investment managers are developing in-house solutions. On the strategies side, investment banks are still dominant because of their better access to derivatives modelling technologies. However, software vendors are developing new libraries with increasing capabilities for both buy-side and sell-side institutions.

Bronze Service

470658621
Monthly cost: USD $1,500.00
Time limit: 5 hours per month
Contract period: 12 months

Bronze service includes:

01. Email support
02. Telephone support
03. Questions & answers
04. Professional advice
05. Communication management

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SERVICE DESCRIPTION
The Bronze Client Service (BCS) for Investment Consulting provides clients with an entry level option and enables client contacts to become personally acquainted with Dr. Valchev over a sustainable period of time. We suggest that clients allocate up to a maximum of 5 Key Employees for this service. Your Key Employees can then contact the consultant via email, whenever they feel that they need specific advice or support in relation to the consultant’s specialist subject. The consultant will also be proactive about opening and maintaining communications with your Key Employees. Your Key Employees can list and number any questions that they would like to ask and they will then receive specific answers to each and every query that they may have. Your Key Employees can then retain these communications on file for future reference. General support inquiries will usually receive replies within 48 hours, but please allow a period of up to 10 business days during busy periods. The Bronze Client Service (BCS) enables your Key Employees to get to know their designated Appleton Greene consultant and to benefit from the consultant’s specialist skills, knowledge and experience.

Silver Service

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Monthly cost: USD $3,000.00
Time limit: 10 hours per month
Contract period: 12 months

Bronze service plus

01. Research analysis
02. Management analysis
03. Performance analysis
04. Business process analysis
05. Training analysis

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SERVICE DESCRIPTION
The Silver Client Service (SCS) for Investment Consulting provides more time for research and development. If you require Dr. Valchev to undertake research on your behalf, or on behalf of your Key Employees, then this would understandably require more time and the Silver Client Service (SCS) accommodates this. For example, you may want your consultant to undertake some research into your management, performance, business, or training processes, with a view towards providing an independent analysis and recommendations for improvement. If any research and development, or business analysis is required, then the Silver Client Service (SCS) is for you.

Gold Service

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Monthly cost: USD $4,500.00
Time limit: 15 hours per month
Contract period: 12 months

Bronze/Silver service plus

01. Management interviews
02. Evaluation and assessment
03. Performance improvement
04. Business process improvement
05. Management training

153681171

SERVICE DESCRIPTION
The Gold Client Service (GCS) for Investment Consulting is intended for more detailed evaluation and assessment, that may require your Key Employees to have monthly meetings or interviews with Dr. Valchev. These meetings and interviews can be conducted over the telephone, Skype, or by video conference if required. The consultant can also attend your business premises, an Appleton Greene office, or another mutually beneficial location, but please note that clients are responsible for the costs of any disbursements separately, including travel and accommodation. This service enables you to integrate the specific skills, knowledge and experience of your designated consultant into your Key Employee management team. The Gold Client Service (GCS) can also incorporate training workshops, business presentations and external meetings with customers, suppliers, associations, or any other business-related stakeholders.

Platinum Service

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Monthly cost: USD $6,000.00
Time limit: 20 hours per month
Contract period: 12 months

Bronze/Silver/Gold service plus

01. Project planning
02. Project development
03. Project implementation
04. Project management
05. Project review

162417170

SERVICE DESCRIPTION
The Platinum Client Service (PCS) for Investment Consulting is our flagship service and will be required if you need Dr. Valchev to facilitate the planning, development, implementation, management, or review of a particular project relating to his specialist subject, which would obviously require more time and dedication. This service enables you to reserve up to 12.5% of the consultant’s working month and provides a more hands-on service as and when required. If you need more time than this, then this can always be arranged, subject of course to the consultant’s ongoing availability. The benefit of having an external consultant involved in projects is they provide an independent perspective and are not influenced by internal politics, day-to-day responsibilities, or personal career interest. They provide objectivity, specific knowledge, skills and experience and will be entirely focused upon the tasks at hand. The Platinum Client Service (PCS) will provide your organization with a valuable resource as and when you need it.

Benefits

Finance
  1. Performance improvement
  2. Risk management
  3. Exposure monitoring
  4. Increasing transparency
  5. Portfolio management
  6. Return consistency
  7. Product valuation
  8. Risk measurement
  9. Portfolio insurance
  10. Alternative beta
Information Technology
  1. Pricing libraries
  2. Enterprise system
  3. Operation model
  4. Algorithmic trading
  5. Service optimization
  6. System architecture
  7. Modular design
  8. Dynamic approach
  9. Simulation engine
  10. Business alignment
Globalization
  1. International diversification
  2. Market access
  3. Emerging markets
  4. International investments
  5. Equity markets
  6. Fixed income
  7. Scalable platform
  8. International distribution
  9. Transaction management
  10. Global branding

Locations

This service is primarily available within the following locations:

London (UK)
London UK

London generates approximately 20 per cent of the UK’s GDP (or $446 billion); while the economy of the London metropolitan area – the largest in Europe – generates approximately 30 per cent of the UK’s GDP (or an estimated $669 billion). London is one of the pre-eminent financial centres of the world and vies with New York City as the most important location for international finance. London’s largest industry is finance, and its financial exports make it a large contributor to the UK’s balance of payments. Around 325,000 people are employed in financial services in London. London has over 480 overseas banks, more than any other city in the world. Over 85% (3.2 million) of the employed population of greater London works in the services industries. The City of London is home to the Bank of England, London Stock Exchange, and Lloyd’s of London insurance market. Over half of the UK’s top 100 listed companies (the FTSE 100) and over 100 of Europe’s 500 largest companies have their headquarters in central London. Over 70 per cent of the FTSE 100 are within London’s metropolitan area, and 75 per cent of Fortune 500 companies have offices in London.