All of our services are based on the quantitative research
and analysis we provide. We aim to provide answers to three simple but important questions:
In order to answer the first two questions we have developed
a stress-testing process that can be used to evaluate new ideas, current offers
and products in the secondary market.
The stress testing process we have developed and the way we calculate the risk of a product originated from a paper from CESR (the European Regulator at the time). We developed their original ideas and created a
facility that allows us to offer stress testing systematically, and regularly
on large numbers of products, and on new product ideas. Our revised process has recently (December 2015) been largely adopted as the process that is being
prescribed to calculate the risk of structured products under the new PRIPS
Our service has been developed in a direct response to the
FCA requirements. The FCA requires that whoever is responsible for the design and development of a new product stress tests the product as part of the product development process. The FCA has not been prescriptive about what is required, but have stated that the stress test is meant to show the range of returns an investor may face, and the risks that investors face. The product manufacturer needs to ensure that this is consistent with the needs of the target market. The stress test needs to be part of the product development process, and not a post-script after issue.
Product manufacturers can upload new product ideas into the stress testing service we offer to check the products risk profile, and the
range of returns that an investor may receive.
The Europeans have taken a more prescriptive approach, and have required that from 2017 all retail products have a risk rating as part of the suite of marketing material. They are consulting about how this should be done. Our analysis is already compliant with the European requirement.
In the current regulatory requirement the analysis allows a product manufacturer to evidence why they have issued the product. The analysis can demonstrate that the product is suitable for the target market, and can be used as part of the manufacturers communication with investment advisers and investors.
The on-going analysis allows the manufacturer to comply with their regulatory requirement monitor products, to ensure that products remain appropriate for the target client base.
SUPPORTING INVESTMENT DECISIONS
The analysis we offer provides the information that will
help fund managers and investment advisers manage portfolios. The analysis can
help to maximize the returns that investors receive, and minimise the risks
that they face.
A reliable, robust quantitative screening process will help investors with their investment process. The analysis can help by generating a short list of secondary products that meet the investors requirements, or by helping the investor choose between a number of slightly different product shapes or issuers for a new issue. For many experienced investors quantitative analysis will reinforce and supplement the intuitive judgment that they will have formed about a product, but in some cases the analysis will offer an unexpected result. In any case the analysis will help investors demonstrate why they have made the investment decisions that they have made.
CONSISTENT ANALYSIS ACROSS DIFFERENT ISSUERS
One of the main benefits of the analysis for investment
managers is that is provides a consistent analysis across different issuers. The
analysis uses the same inputs and methodology across all products, and
generates the same outputs. This allows a true apples-with-apples comparison of
one product with another.
If investors rely on analysis offered by the issuers the
results can be very difficult to compare:-
- Different issuers will use different inputs to their stress test
- The levels of volatility and expected return will be calculated in different ways, so even with the same output from the stress test these values can be very different from one issuer to another.
The analysis is updated every week for every product. This helps investors identify new investment opportunities in the secondary market, and to monitor products that are held in the portfolio already.
With over 1,200 products uploaded in our analysis investors can easily identify attractive secondary market opportunities. Investors can filter products to generate a short list of products that may be considered, and then rank the short list to identify the most attractive products.
Investors and advisers can use the analysis to ensure that products held in the portfolio remain attractive and appropriate:-
- Is there an event coming up that needs the
investor to take some action?
- Is the risk profile of the product still
suitable and appropriate?
- What is the expected return?
- Is the price of the product close to the fair