Anybody working in portfolio construction can share about the day-to-day, goods and bads or anything worth knowing about this role? most interesting/annoying aspects? I’m currently working in the asset management arm of a BB. I’ve been here for 6 months, starting as an intern. Now my MD is setting up a portfolio construction team (the role doesn`t currently exists as such in my location) and wants me in it. For now it would be just me and another -much more experienced- guy, so at least I know I would participate directly in every aspect of the job. Any commentary will be appreciated.
wow this sounds like a great opp dude i dont have any experience on this but i cant imagine why u would pass up this
Thanks, pimpineasy. I’m taking it for sure. I just want to know as much as possible about the role, its pros and cons, the skills and knowledge I should gain to do well in it,… anything useful about it. It seems hard to find anything on the internet besides some books and white papers, which look pretty interesting as well as dense, by the way.
well the cfa material esp level 3 should be quite useful…i assume ur bank has prop software so u should be fine there
I think portfolio construction is an exercise to reach a balance between these four thing (and more), - ensure you are not breaching any risk limit - managing cashflow - build the portfolio to desired level - reduce cost Day to day life includes assessing what’s in your portfolio, how would adding something or removing something affect your risk composition. On the other hand, you also need to think about new investment opportunities. Managing cashflow is another thing, it can be tedious sometimes but managing cash is quite important…it’s free rebalancing tool!
Are these the guys that develop asset allocations?
Thanks, guys. Do you work in this, yuoska? Any recommended book, paper, programming language… anything? I’m starting to play with R and taking a look to this book: http://www.amazon.co.uk/Handbook-Portfolio-Construction-Contemporary-Applications/dp/0387774386/ref=sr_1_1?ie=UTF8&s=books&qid=1303166694&sr=8-1
Palantir Wrote: ------------------------------------------------------- > Are these the guys that develop asset allocations? I don’t know about other places, but in my team the idea is that a committee formed by portfolio managers, research guys and us will decide the asset allocation, mostly based on what the research guys think, and our job will be to set up the different risk-profile and investment style portfolios, specifying funds and weights. Besides that, as yuoska said, we would analyze the effects of adding/removing certain funds, the risk exposure of the portfolios and all kinds of quantitative stuff.
Fdez Wrote: > I don’t know about other places, but in my team > the idea is that a committee formed by portfolio > managers, research guys and us will decide the > asset allocation, mostly based on what the > research guys think, and our job will be to set up > the different risk-profile and investment style > portfolios, specifying funds and weights. Besides > that, as yuoska said, we would analyze the effects > of adding/removing certain funds, the risk > exposure of the portfolios and all kinds of > quantitative stuff. It’s a great gig! I was a member of a similar team a little while ago. We did asset allocation on a macro level. Based on the mandate, you will either be involved in creating pooled model portfolios (eg: 60/40, 25/75, or just plain balanced), or you wil be creating customized portfolios for SMA platforms. The SMA mandate will provide you with their guidance.
Iginla2010 Wrote: ------------------------------------------------------- > It’s a great gig! I was a member of a similar team > a little while ago. We did asset allocation on a > macro level. Based on the mandate, you will either > be involved in creating pooled model portfolios > (eg: 60/40, 25/75, or just plain balanced), or you > wil be creating customized portfolios for SMA > platforms. The SMA mandate will provide you with > their guidance. Yeah, we currently have 5 model funds portfolios based on equity exposure. We would be in charge of analyzing their risk, asset classes, geographic, etc exposure and propose changes regarding specific funds to add or remove, indicating the appropriated weights; adapt the model portfolios to every specific mandate; obtain the performance attribution of the portfolios and perform all kinds of ad-hoc analyses on them Apart from the mandates, we will probably have to set up some specific funds of funds depending on demand.
what software do u use?
As I said, the role doesn’t currently exists as such. Up till now we are doing all kinds of other stuff and using our own Excel and VBA models for this. Once all the company bureaucracy, business proposal and everything is dealt with, the role is explicitly set up and we can work full-time on it, we are suppose to asses which tools we need and/or can develop by ourselves. Any recommendation about software, documentation or anything else will be welcomed.
Look up “Palisade”. It incorporates into Excel, you can do tons of optimization, run Monte Carlo, etc. http://www.palisade.com/risk/
I’m in the field of asset allocator i.e. pension. In Australia, we’re called superannuation. The strategic asset allocation is determined predominantly by asset consultants. Our role is really to ensure things go according to investment policy statements. We also try to generate investment ideas, fine tune portfolios etc. When it comes to constructing a portfolio, anything counts… from your SAA, DAA, TAA then your beta exposure, risk composition down to transition cost, rebalancing cost etc. I believe in the field of fund manager, PIMCO, Fidelity the type of the shops. The asset allocation is more determined internally. The rest should be similar. I don’t have any recommendation in mind. It depends on what type of portfolio you’re constructing. To get you started, I think Bridgewater has some good research online. SSgA also has vision series that is available publicly. Hope it helps.
Is there a real difference between Tactical Asset Allocation and Dynamic Asset Allocation, or is it just marketingspeak for the same thing?
Thanks, Iginla. I will take a look. yuoska Wrote: ------------------------------------------------------- > I’m in the field of asset allocator i.e. pension. > In Australia, we’re called superannuation. The > strategic asset allocation is determined > predominantly by asset consultants. Our role is > really to ensure things go according to investment > policy statements. We also try to generate > investment ideas, fine tune portfolios etc. When > it comes to constructing a portfolio, anything > counts… from your SAA, DAA, TAA then your beta > exposure, risk composition down to transition > cost, rebalancing cost etc. > > I believe in the field of fund manager, PIMCO, > Fidelity the type of the shops. The asset > allocation is more determined internally. The rest > should be similar. > > I don’t have any recommendation in mind. It > depends on what type of portfolio you’re > constructing. To get you started, I think > Bridgewater has some good research online. SSgA > also has vision series that is available publicly. > Hope it helps. It does really help. Thank you. We mainly construct SMA mandates portfolios using 15 to 25 funds across different asset classes and sometimes some simple index following structured products. We have 5 templates based on different levels of equity exposure that then must be adapted to each particular mandate’s restrictions (usually none or very few). At the end we have something like a global mixed fund of funds. The average AUM for a mandate is around 1.5 MM € In the near future we will also work with SICAVs (containing virtually anything) from 2 to 15 MM € and participate in some funds of funds with specific styles. In our case, the asset allocation is decided internally by a reduced committee including us.
Most annoying thing as a PM in our shop is that the SAA & TAA is always set by our quants which inhibits strong ideas entering your portfolio. Always trying to stay within the +/- 5% paramaters means that a lot of your portfolios resemble one another e.g. core holdings for established investments and then some differentiators around the edge. Always found the it proscriptive - we used 3 profiles from low risk to high risk depending on the portfolio (and most often, the client requirements). Working in a less liquid environment (fund of fund), means you have to discount certain managers if they are not world class, don’t have high liquidity (monthly terms usually best you could hope for in certain investment categories) and depending on exposures. Takes away a lot of the fun of bottom up selection as you are often automatically guided towards or away from different investments. And quants are such a modest bunch of folk too…
Yeah, that sounds annoying. The guy I will be working with in this is a Mathematics graduate who has been working as a PM for the last 8 years and doing all the quantitative analyses, optimization, etc of the portfolios on the side, so while you could call him a quant, he also knows the PM job and is pretty flexible about what his models say. Although we will keep participating in the asset allocation decisions, our job will be more oriented towards the funds and weights selection based on portfolio theory, developing optimization models, assessing the effects on proposed changes and performing all kinds of quantitative analyses on the portfolios. The economics research guys and a couple of the most senior PMs usually have the last word about the asset allocation. The liquidity restriction does constraint us a lot. We have a couple of funds on our templates with monthly liquidity, but that’s all and we can include them in many less portfolios than we would like to due to client’s skepticism (or plain fear).
Are you going to program that in R yourself? I know an ex-colleague of mine has started writing software for a cat bond fund (run by another ex-colleague & friend of mine). I’d have thought you would need to work hard on the programming side of things if you weren’t already there - better to hire someone for that imo than do it for yourself due to the problem solving needed. Otherwise, you can do a lot in excel but I think a lot of people will tell you it has limits for industrial levels of use. The palisade link that IGinla posted looked user friendly and basically saves you creating in excel from scratch as far as I can see.
bchadwick Wrote: ------------------------------------------------------- > Is there a real difference between Tactical Asset Allocation and Dynamic Asset Allocation, or is it just marketingspeak for the same thing? From what I’ve seen, the marketing speak distinction is this: TAA = I think GE is going up because the 50dma > 200dma or they’re reporting earnings in a few days and I think they’ll beat the estimates (i.e. stock picking). DAA = Risk or volatility based shift in asset classes. If volatility goes up I start to progressively shift from equities to FI. Can be quantified in many different ways. In my opinion, the distinction is purely marketing as ultimately you’re still making a short term allocation/trade based on your market view that’s different than your long term SAA - that’s TAA in my mind, but 3 is better than 2, so there you go.