Even Chen Institutional & Segregated Fund Business JPMorgan Asset Management , Taiwan The Evolvement of Pension Management: Searching for opportunities in alternative investment December 13, 2006
Agenda n Basic observations of pension management n Pension surveys & trends – New sources of return – U. S. pension reforms and challenges for plan sponsors n The benefits of alternative investment in portfolio management 1
How did U. S DB pension plans lose so much ground? Historical analysis of asset/liability performance for hypothetical plan 2
81% of U. S. Top 200 corporate pension plans with an underfunded status ending 2005 Median funded ratio: 86% - remains at 2004 levels There is a significant difference in return on assets between top and bottom performers 3
tsap eht fo gniht a si yenom ysa. E 50. 00% 40. 00% The good old days in global investment sphere Increasing volatility in S&P 500 return distributions return frequency 30. 00% Oct-97 Oct-99 Jun-03 4% 3% 20. 00% 3% 2% 10. 00% 2% 0. 00% 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 -10. 00% 1% year 1% return -20. 00% -80% -60% -40% -20% 0% 0% 20% 40% 60% 80% -30. 00% Source: JPMorgan Asset Management; MSCI World Index 1975~2004 4 Source: JPMorgan Asset Management Estimates: S&P 500 distribution of 10 year trailing returns using monthly data
Pensions all over the world reveal a strong home bias Domestic equities as a share of total equity allocation and as total world market capitalization in select markets 74% n Investors all over the world. Share in a strong home bias reveal Share in market cap 55% portfolio 53% 33% 1% HK 1% Nordics US Source: MSCI, JPMorgan Asset Management. The chart shows the percentage of each market as represented in the MSCI World index (December 2004), and as a percentage of the equity portion in average pension portfolios. Shown for illustrative purposes only. 5
But domestic equity has underperformed and volatility is much higher Cumulative return of Taiwan equity vs. Global equity 1991 = 100 Markets Historical volatility Taiwan 34% US 14% Europe US 15% Asia ex. JP 20% Europe EME Domestic TW equity Source: MSCI, Ibbotson, JPMorgan Asset Management. The chart the cumulative return for S&P/IFC Taiwan TR index, S&P 500, MSCI Europe and S&P/IFC Emerging Market Index. Shown for illustrative purposes only. 6
Relaxing constraints on international equities leads to better portfolios Efficient frontiers with different limits on international assets What return premium would justify a high concentration in domestic? Typical allocation Unconstrained Return Max 50% Max 10% Zero Allocation to domestic 60% 50% 40% 30% 20% 10% Domestic expected to underperform Domestic expected to outperform 0% -2. 50% -1. 50% -0. 50% 1. 50% 2. 50% 3. 50% Risk Expected return of domestic vs. international Source: JPMorgan Asset Management based on proprietary optimization model using long-term expected return assumptions, historical volatility and correlations. Shown for illustrative purposes only. 7
The correlations are the key to the success of diversification Performance of different equity portfolios during select global equity bear markets Correlation with Taiwan equity index 1990 -2004 0. 9 EME 0. 8 0. 7 0. 6 0. 5 US 0. 4 Europe 0. 3 0. 2 0. 1 0. 0 94 95 96 97 98 99 00 01 02 03 04 Source: MSCI, Ibbotson, JPMorgan Asset Management. The chart shows the 3 -year rolling correlation for S&P/IFC Taiwan TR index, with S&P 500, MSCI Europe and S&P/IFC Emerging markets Index. Shown for illustrative purposes only. 8
The world has become “one market” 9
A more diversified portfolio with non- traditional assets would have held up better Performance of different asset classes during 00 - 02 Performance of different portfolios during 00 - 02 Inflation bonds 0% 15% Long duration EMD 10% Real estate Commodities -4% 0% 0% 5% 10% 15% 20% 25% 30% 35% 40% -5% -10% Global equity -20% -4% -6% -8% -10% -12% -14% TW equity -25% -16% -18% Global equity -30% Historical risk Source: MSCI, Ibbotson, JPMorgan Asset Management. The chart shows the annualized compound return for S&P/IFC Taiwan TR index, S&P 500, MSCI Europe and S&P/IFC Emerging markets index during the period March 2000 – December 2002. Shown for illustrative purposes only. 10 Historical return 5% -1% -2% Equity / bond portfolio Diversified portfolio Source: MSCI, Ibbotson, JPMorgan Asset Management. The chart shows the annualized compound return for MSCI World equity, a balanced 50% equity / 50% global bond portfolio, and a diversified portfolio consisting of 10% DJAIG TR commodity index, 10% JPMEBI Emerging markets debt index, 10% US Inflation – linked bonds, 20% Lehman Brothers Long government / credit index, 15% US Large cap S&P 500 index, 15% MSCI EAFE index, 10% S&P/IFC Taiwan TR equity index, 10% Direct real estate NPPITR index during the period March 2000 – December 2002. Shown for illustrative purposes only.
Agenda n Basic observations of pension management n Pension surveys & trends – New sources of return – U. S. pension reforms and challenges for plan sponsors n The benefits of alternative investment in portfolio management 11
There are pronounced differences in the average portfolio allocations for U. S. and Europe pensions Europe favours a more conservative mix while U. S has greater concentration in domestic assets 12
U. S. is more inclined to routinely rebalance asset allocation while Europe appears more willing to actively shift away from their strategic allocations 13
There is also pronounced differences in return expectations and benchmarks for measuring U. S. has higher return expectation than Europe Differences in how success is measured 14
Utilizing broader range of assets and more active management style Show great willingness to use alternative asset classes / strategies to enhance returns Trends in embracing active equity investment management 15
Hiring innovative strategies and tools - Europe is more likely to use absolute return while U. S. prefers portable alpha relatively Showing a divergence in using innovative strategies between Europe and U. S. Derivative is popular tool hired to enhance portfolio performance Leverage is less popular tool taken to boost returns 16
Agenda n Basic observations of pension management n Pension surveys & trends – New sources of return – U. S. pension reforms and challenges for plan sponsors n The benefits of alternative investment in portfolio management 17
Higher funding target to be required 18
Yield curve for discounting liabilities *Assuming an upward-sloping yield curve 19
Overview of possible accounting changes 20
Responding to the challenges Different rules and concerns lead to different strategies used to enhance performance Innovative solutions Source: JPMorgan Pension Survey December 2006 21
Agenda n Basic observations of pension management n Pension surveys & trends – New sources of return – U. S. pension reforms and challenges for plan sponsors n The benefits of alternative investment in portfolio management – Hedge Fund – Real Estate – Private Equity – Currency Overlay 22
Alternatives have become popular assets for pension plans Investment in alternative asset classes for U. S. pension plans Source: JPMorgan Pension Survey December 2006 23
Why alternatives? Strong outperformance over past decade 24 The alternative world – $3 trillion in assets
Alternative asset return assumptions in 2008 Source: JPMAM Estimates ; US dollar-based assumptions; compound (IRR) 10 -15 years returns 25
Agenda n Basic observations of pension management n Pension surveys & trends – New sources of return – U. S. pension reforms and challenges for plan sponsors n The benefits of alternative investment in portfolio management – Hedge Fund – Real Estate – Private Equity – Currency Overlay 26
More money from institutions contributes to an unprecedented growth of hedge fund assets Assets within the hedge fund industry have grown at an unprecedented rate throughout the last decade Estimated growth of hedge fund assets (1990 to June 2006) Assets in billions 8, 987 Funds Source: HFRI Institutional Percentage of Total Hedge Fund Net Flows Institutional share of total Hedge Fund capital flows 60% 50% 40% 30% 20% 10% 0% 2000 2001 2002 2003 Year 27 Source: Casey, Quirk & Acito and The Bank of New York analysis 2004 2005 2006 2007 2008
Benefits of allocating to hedge funds in a diversified portfolio Hedge funds have higher risk-adjusted returns with low correlation compared to traditional asset classes Risk and Return of Stocks, Bonds and Hedge Funds: 1990 - 2005 100% Hedge Fund Composite 1 100% S&P 500 50% S&P 500 and 50% Lehman Govt. /Corp. Bond 100% Lehman Govt. /Corp. Bond Measure of risk adjusted return. The risk-free rate is the U. S. 3 -Month TBill rate annualized over the period. 2 Maximum drawdown is the largest percentage drawdown during the period 3 Hedge Fund Research (HFR) is a widely used industry benchmark, although the exact composition of these indices remains proprietary. 1 28 Source: Per. Trac. Hedge Fund Composite represented by HFRI Weighted Composite (net of manager fees) Past performance may not be indicative of future results. Indices are shown for illustrative purposes. Indices are not available for investment by the public nor are fees and expenses charged by indices. This is not intended and should not be interpreted as the performance of an actual investment.
More institutions are investing but aggregate allocations remain small Percentage of Institutional Investors Using Hedge Funds Hedge Fund Allocation as a Percentage of Total Institutional Assets 2002 2003 2004 U. S. 2003 1. 0% 1. 3% 1. 6% Canada 0. 9% 1. 2% 1. 6% United Kingdom Continental Europe Japan 0. 1% 0. 2% 0. 6% 1. 0% 0. 4% 1. 0% 2004 U. S. 23% 28% Europe 23% 32% Japan 18% 40% Percentage of Institutional Investors Using Hedge Funds 15% 20% 23% 28% 2001 50 2002 2003 2004 2005 0 29 Source: Greenwich Associates (December, 2004) *Continental Europe Source: Greenwich Associates, Demand & Hiring for Hedge Funds 2001 -2005
Agenda n Basic observations of pension management n Pension surveys & trends – New sources of return – U. S. pension reforms and challenges for plan sponsors n The benefits of alternative investment in portfolio management – Hedge Fund – Real Estate – Private Equity – Currency Overlay 30
European pension funds place significantly more faith in property than other regions of the world Europe pension fund allocations to real estate by country ended 2002 31
There is a better diversification impact of investing in property than in international equities Private property correlations 1995 -2004 Source: IPD, JPMorgan 32 U. S. correlations with foreign markets 1996 -2005 Source: GPR, MSCI, JPMorgan
Cross-border correlations within Real Estate Companies kept down by staying local Typical non-Real Estate International Company Sources: Company filings, JPMorgan Typical Real Estate Company Sources: Company filings, JPMorgan Revenue shares for Real Estate and non-Real Estate companies 33
Sources of revenues for Top 10 broad market and real estate firms Top 10 broad market firms Source: Company filings, JPMorgan 34 Top 10 real estate firms Source: Company filings, JPMorgan
Adding REITs to global portfolios produces better risk/return profile Ten years through September 30, 2006 Global Stocks and Bonds Return: Risk: Sharpe ratio: With 10% Global Real Estate Securities 5. 91% 10. 39% Return: Risk: Sharpe ratio: 0. 22 Ten years through September 30, 2006 RES Equity 6. 55% 9. 83% 0. 30 Fixed Income Annualized Return 11. 81% 5. 72% 5. 43% Standard Deviation 13. 45% 14. 51% 6. 53% Source: Ibbotson, GPR, MSCI, J. P. Morgan Investment Management 35 The following indices were used as proxies for the respective asset classes: Global Real Estate Securities (GPR 250 Index), Equity (MSCI World), Fixed Income (JPM Government Bond Index Global).
Agenda n Basic observations of pension management n Pension surveys & trends – New sources of return – U. S. pension reforms and challenges for plan sponsors n The benefits of alternative investment in portfolio management – Hedge Fund – Real Estate – Private Equity – Currency Overlay 36
Buyout is mainstream market in P. E Distributions by US private equity funds (199009/30/2003) Annual percent net change in portfolio valuations US venture and buyout formed 1992 -2003 90, 000 80, 000 Buyouts 70, 000 Venture 60, 000 200 Buyouts 50, 000 40, 000 Venture 150 Distribution $mn 20, 000 50 Percent 100 30, 000 10, 000 0 1992 1994 1996 1998 2000 2002 Year 0 1992 1994 1996 1998 -50 Year Database Source: Venture. Xpert database from Thomson Venture Economics Investment Data Source: The Money. Tree Survey by Pricewaterhouse. Coopers/Thomson Venture Economics/NVCA All other data Source: Thomson Venture Economics 37 2000 2002
Emerging markets potentially have room to grow Geographic breakdown in 2005 Data Source: Private Equity Intelligence 38 P. E as a percentage of GDP
P. E with a stable performance compared to global equity 300% return in 10 years Data Source: Private Equity Intelligence 39 P. E versus MSCI 1994 -2005
The trend of “Mega” will dominate the P. E market Raised AUM in buyout from 2004 to 2006 Data Source: Private Equity Intelligence 40 The bigger AUM, the better performance
Beta and Alpha in P. E as a beta market versus public equity (S&P 500) ; 5 -years rolling annualized total return since 1986 Data Source: JPMorgan, Datastream, LPX, Cambridge Associates 41
Agenda n Basic observations of pension management n Pension surveys & trends – New sources of return – U. S. pension reforms and challenges for plan sponsors n The benefits of alternative investment in portfolio management – Hedge Fund – Real Estate – Private Equity – Currency Overlay 42
The diversification going into global assets generates currency risk 43
Unhedged currency exposure has significant volatility Annual returns of MSCI World to Taiwanese Investor Source: JPMorgan Asset Management, MSCI, Bloomberg … Currency can have meaningful returns in international investing 44
How to hedge? Active, or passive, or “do nothing” 45
Perfect overlay versus actual overlay Quarterly currency performance with perfect overlay 46 Quarterly currency performance with actual overlay
Optimal hedge ratio varies by international exposures Source: JPMAM 47
Adding value through active currency overlay management 48
The benefits of currency overlay management Annualized hedging return for unhedged composite of JPMAM clients Frank Russell Survey for currency overlay Portfolio currency return (%) Industry 1. 2 1. 0 All account information ratio Currency Overlay Hedging Return JPMAM 1. 06% 1. 42% All account tracking error 0. 6 0. 79 All account excess return 0. 8 0. 55 2. 25% 1. 79% Cumulative success ratio 75% 92% 0. 4 0. 2 Unhedged Currency 0. 0 5 5. 5 6 6. 5 7 7. 5 Portfolio risk (%) * Unhedged results: 49 Equal weighted composite of JPMorgan Asset Management's managed currency returns for MSCI World ex US, unhedged USD based portfolios from 1 st September 1992 to 30 June 2005, currency return as measured by JPMorgan Asset Management. The results are gross of fees. Source: JPMorgan Asset Management * JPMAM = 48 accounts, Industry = 241 accounts Source: Frank Russell, JPMAM Survey sample: 1989 -2000
Appendix 50
The summary of U. S. pension reforms and implications 51
A hedge fund bubble has yet to be seen 52
Property securities market correlation minus broad stock market correlation 1996 -2005 Source: GPR, MSCI, JPMorgan 53
LPX – Private Equity Index Top 10 companies in LPX Major Market Data Source: Newsletter LPX Major Market (30 June, 2006) 54
Searching for the optimal hedging ratio and foreign exposures Sharpe ratios using different combinations of hedging and foreign exposure 55
JPMorgan Asset Management The commingled trust funds are collective investment funds maintained by JPMorgan Chase Bank. Only qualified employee benefit trust and governmental plans that have appointed JPMorgan Chase Bank as fiduciary are permitted to invest in the fund. JPMorgan Asset Management advises JPMorgan Chase Bank regarding the management of the funds. Past performance is not indicative of future returns. Net returns are based on the highest applicable fee rate for this strategy. This document is intended solely to report on various investment views held by JPMorgan Asset Management. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. Indices do not include fees or operating expenses and are not available for actual investment. The information contained herein employs proprietary projections of expected returns as well as estimates of their future volatility. The relative relationships and forecasts contained herein are based upon proprietary research and are developed through analysis of historical data and capital markets theory. These estimates have certain inherent limitations, and unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees or other costs. References to future net returns are not promises or even estimates of actual returns a client portfolio may achieve. The forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. The value of investments and the income from them may fluctuate and your investment is not guaranteed. Past performance is no guarantee of future results. Please note current performance may be higher or lower than the performance data shown. Please note that investments in foreign markets are subject to special currency, political, and economic risks. Exchange rates may cause the value of underlying overseas investments to go down or up. Investments in emerging markets may be more volatile than other markets and the risk to your capital is therefore greater. Also, the economic and political situations may be more volatile than in established economies and these may adversely influence the value of investments made. Performance results are gross of investment management fees. The deduction of an advisory fee reduces an investor’s return. Actual account performance will vary depending on individual portfolio security selection and the applicable fee schedule. Fees are available upon request. 56 The following is an example of the effect of compounded advisory fees over a period of time on the value of a client’s portfolio: A portfolio with a beginning value of $100 million, gaining an annual return of 10% per annum would grow to $259 million after 10 years, assuming no fees have been paid out. Conversely, a portfolio with a beginning value of $100 million, gaining an annual return of 10% per annum, but paying a fee of 1% per annum, would only grow to $235 million after 10 years. The annualized returns over the 10 year time period are 10. 00% (gross of fees) and 8. 91% (net of fees). If the fee in the above example was 0. 25% per annum, the portfolio would grow to $253 million after 10 years and return 9. 73% net of fees. The fees were calculated on a monthly basis, which shows the maximum effect of compounding. Illustration showing impact of investment management fees: An investment of USD $1, 000 under the management of JPMAM achieves a 10% compounded gross annual return for 10 years. If a management fee of 0. 75% of average assets under management were charged per year for the 10 -year period, the annual return would be 9. 25% and the value of assets would be USD $2, 422, 225 net of fees, compared with USD $2, 593, 742 gross of fees. Therefore, the investment management fee, and any other expenses incurred in the management of the portfolio, will reduce the client’s return. All case studies are shown for illustrative purposes only and should not be relied upon as advice or interpreted as a recommendation. They are based on current market conditions that constitute our judgment and are subject to change. Results shown are not meant to be representative of actual investment results. Past performance is not necessarily indicative of the likely future performance of an investment. Any securities mentioned throughout the presentation are shown for illustrative purposes only and should not be interpreted as recommendations to buy or sell. A full list of firm recommendations for the past year are available upon request. JPMorgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co and its affiliates worldwide. Copyright © 2005 JPMorgan Chase & Co. All rights reserved.
Скачать презентацию Even Chen Institutional Segregated Fund Business JPMorgan
c787454b13c246a424213748860086af.ppt