DESCRIPTOR v-2
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Transcript of DESCRIPTOR v-2
The WHY, WHAT & HOW of
Company Summary - Sherpa Funds Technology (SFT)
ORS creates a framework for decision making. It allows portfolio managers to express the constraints and
targets of all stakeholders in a consistent manner and then calculates the Optimal Portfolio. ORS aims to
become an industry standard benchmark used across funds, advisors and the retail investor universe
Enhanced returns, Improved investor relations & Help with raising assets
LONG ONLY: Asset Managers, Pension Funds,
Insurance Companies, Sovereign wealth
Better Control
Alignment with Goals
Front-office Footprint
HEDGE FUNDS: Long/Short, FX, Commodities, Equities
WEALTH MANAGERS: Private Banks, Financial
Advisors
ALLOCATORSFund of Funds, Fund Platforms
RETAIL TRADERSSelf Managed Pension, Active Traders
TECHNOLOGY PARTNERSCore IT Providers, Market Data Suppliers
SFT builds Software as a Service (SaaS) analytics that improvedecision making processes in asset management
SFT has developed and patented OPTIMAL RISK SIZING (ORS),a product that has global appeal to a vast market of clients & partners
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The Problem
6 MILLION WAYSto create this portfolio
THE ASSET MANAGER'S AREA OF EXPERTISE THE FINAL RESULTTHE CHALLENGE
ANALYSE
Buy, Sell,Do nothing
GOAL SETTING
Defined or Undefined
Data, Mandate
LIST OF POSITIONS
CALCULATE
CalculatePosition
Weighings
PORTFOLIO
GOOGAAPLMSFTIBM
+1
-1
+1
-1
GOOGAAPLMSFTIBM
+15%
-25%
+11%
-35%
Asset Managers need to create a portfolio, not just compile a list of assets
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500 decisions to make in stage
#1 if you are looking at 500 of the biggest stocks in the US
Unlocking the Perfect PortfolioThe best combination of assets involves many competing inputs, including unhealthy ones -
The Optimal portfolio requires consistent application of the positives and filtering out the unhealthy choices
Page | 4OPTIMALPORTFOLIO
Benefits of ORS
Fact 1: Better Returns Fact 2: Better Investor Links Fact 3: Better Process
Example of a fund running ORS in parallelover a 3 month period (April - July 2015)
Investors prefer managers who have aframework that aligns them to theirinvestment goals, risk tolerances &targets
A proven process which makes you moreinvestable and allows focus on key assetselection responsibilities
This feeds directly into growing the
business by growing the AUM.
ORS helped a client raise USD 300m+ in
one competitive pitch for a pension
mandate.
Allocators are looking for process,
longevity and immunisation from personal
biases and inconsistencies. Portfolio
Managers are looking to focus on asset
decisions, and achieve consistent returns.
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110
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3/17/2015 4/6/2015 4/26/2015 5/16/2015 6/5/2015 6/25/2015 7/15/2015
Original Portfolio Sherpa ORS Sized
Portfolio Cumulative P&L
01 April 2015 - 03 July 2015
Original Portfolio & ORS Size portfolio,live parallel run
With this fund, the PM had good asset and conviction calls over 3 months and ran an ORS portfolio in parallel.
The ORS portfolio outperformed by an annualised 6%
BETTER RETURNS
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Two Points of View - One Solution!ORS provides a framework that unites the very different views of the PM & the CIO
ASSET SELECTION
CONVICTION
RISK LIMITS
GROSS EXPOSURE LIMITS
SECTOR EXPOSURES
FACTOR EXPOSURES
PortfolioManager
View
CIO/InvestorView
The PM's decisions and convictions are traded consistently with therequirements defined by the Investor/CIO
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Why Now?
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Neither are airplane 'Wingtips’: The theory was developed in the 1900’s, but
they only appeared in the 1980s and now are on every commercial airliner.
Only now, with the progress of technology, can Wingtips - just like ORS -
make you more money!
Portfolio Optimisation is not new in concept: Markowitz won the 1990Nobel Prize for work carried out on this topic.
1. Access to Computer Power
Cloud Computing makes intensive computation SaaS possible
2. Consolidating Industry with pressure on margins
ORS retools active managers against the competition from Robo-Advisor products
Transparency and aligned interest: ORS aligns managers with the interests of investors. There are too many tales of managers changing investment style for personal gain
3. "Process is Progress" - This applies to investment decisions, not just operations
Moneyball: Process defines successToyota: Continual Process improvement 'Kaizen'Warren Buffet: "We enjoy the process far more than the proceeds"
Reasons why NOW is the right time for this 3
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So What is the ORS Calculation?
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ORS considers practical limits imposed by trading costs andmarket liquidity to create a:
Practical Optimal Portfolio, “The POP”, as well as a
Benchmark Optimal Portfolio “The BOP”.
ORS takes inputs regardingwhat the Portfolio is trying toachieve
Portfolio Risk Tolerance andPortfolio Goals
+
ORS takes constraints andconviction information onthree levels: the Portfolio, SubPortfolios and Assets
Portfolio Net & Gross Limits, Risk andFactor Exposures.
+
Sub Portfolio Net and Gross Limits+
Asset constraints (min/max size) andconviction levels
+
ORS takes at a portfolio orAsset level a measure of thequality of the decision making
This is similar to considering thehistorical Sharpe ratio of the PM
+
ORS takes inputs from the PMthat change as the assetdecisions are changed
T h e P o s i t i o n s y o u w a n t t obuy/hold/sell. The PM’s skill is inmaking and timing these decisions
Market Data
+
+
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How does the ORS do this Calculation?
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We build a risk model to compute these returns bytaking the historical data, and adjusting it for individualasset convictions and any forward looking estimates asgiven by the user and Assets
Note for a portfolio of 10 assets, each of which canbe between 5% & 15%, there are 10bn possiblecombinations, just looking at whole number %. Ifthe Portfolio has to be exactly 100% invested, thenumber is about half that.
+
ORS takes all the inputs, andrepresents them mathematically.
ORS then searches for the Portfolio thathas the ‘Best' weighting of assets.
‘Best’ means the one that gives thehighest ‘Utility’ of returns.
‘Utility’ is defined by measuring thereturns against Input #1 “What I amtrying to Achieve?”
+
+
ORS searches the possible combinations of assets using a combination ofdimension reduction, Monte-Carlo and multi-generational optimiser techniques.These are well established techniques in academic, engineering, science andfinance.
There are practical considerations w.r.t the stability of solutions foundby such techniques in general, so please note that we at SFT have over20 years experience dealing with multi-variate optimisers in Finance,and indeed as traders were the original developers of many techniquesthat are in use today in banks to manage these problems.
+
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Before and after ORS - Snapshot of reshaping a real portfolio of 64 assets
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So What are you paying, What do you have to do & What do you get
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ORS Pricing ORS Requirements ORS Deliverables
ORS is billed per Portfolio, and is‘softable’ being portfolio specificpre-trade analytics.
A 200m USD Portfolio will pay USD 4k permonth. Typical return improvementspay the Manager back in under 6 weeks.
ORS Extras
SFT can work with you to integrate ORS, allowing you to call the API direct from your own systems.
SFT can help you differentiate your Fund when raising AUM by providing sales support, demonstrating how ORSaligns you with your investors.
ORS is delivered as a cloud-hosted SaaS. It is simply accessed through Excel andweb browsers.
Your account also gives you access to theweb-interface to create personalisedrisk tolerances and portfolio
ORS lands on your desktop on day 1 as aset of Excel functions, which require onlyAdmin rights to install as an xll.
ORS can create automated messagingwith commentary from PMs to CIOs andeven Investors giving completetransparency and pre-P&L indications ofnon-optimal positions.
That’s it, there’s no more to it.
ORS : Milestones to Date
100 +ORS has been tested on over 100portfolios from commodity, FX,and equity funds, as well as fund-of-funds/master-funds. ORSconsistently generates betterreturns.
2015ORS SaaS product
has been operational since
April 2015
2014SherpaFundsTechnology
ORS was used by our first client as the cornerstone of asuccessful pitch for a large Government Pension Mandate
ORS is fully operational in multi-billion USD funds as anintegral part of their position management
ORS is ‘Softable’, as it is portfolio-specific pre-trade analysis
Pilots in place with several large asset managers, wealthmanagers and private banks
SFT’s business model is to deliver ascalable (easily configurable) productand a simple pricing model withminimal IT overhead to FundManagement decision makers. Weare partnering with Prime Brokers,Administrators and Technologyinnovators to offer this service to theirInstitutional Client base, as well asbuilding a ‘free app’ version aimed atthe Retail market.
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Who are We
Richard Waddington
Mathematics & Business CEO
20+ years experience as a Derivatives Trader and sell-side Global Trading Business Head.
“Most bad stories from risk taking revolve around people getting emotionally attached to trades and the act of trading. Good decisions are so often compromised by bad emotions.”
Craig McGee
Business Development & Strategy
20+ yrs experience in Financial Markets, Head of Trading for several Global Investment Banks. PrivateEquity Investor, highly connected in the Fund Manager and Brokercommunities.
“By offering disruptive pre-trade portfolio management analytics, SFT is set up to help Investors and Fund Managers grow in a win-win manner. ”
Ben Wark
Marketing
Experienced Regional Sales Manager for large global Software companies, building capabilities covering B2B, B2C and Partner Channels.
“Creating a Market Presencemeans offering real differenceto your clients. Maintaining that difference takes discipline and process.”
Sinan Tunalioglu & Tolga Sezer
R&D and Technology
Experienced Finance Technologists with PhD level backgrounds in Financial Mathematics and Computer Science.
”It is fascinating to see the interplay between mathematics and trading behaviour, and to resolve these behavioural dilemmas in this innovative way.”
Advisory Board
Dr. Catalin Burlacu, PhD
Adjunct Professor at SMU & Fund Manager.Advises on Mathematics.
David Rundell
IT professional. 20+ yrs running IT teams and projects in global investment banks.Supervises IT.
Eric Wong
Fund Manager and Innovator in the fields of DMA & market-making. Advises on Strategy and Markets.
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Is ORS suitable for all types of assets and clients?ORS works very well for single assets where historical pricedata is continuous. Equities, FX, Commodities and I.G. Fixedincome work well. High Yield bonds, convertibles, andstructured products will become available in 2016.
How many portfolios have you run through the Optimizerduring testing?We have run c. 100 different portfolios through the ORSsystem and see improved returns in over 90% of them.
How does ORS sit on the desktop?This can be customized for user needs –Excel is still the mostcommonly used tool for PMs and ORS is directly accessiblethrough Excel. ORS typically takes 10 seconds to returnboth the Benchmark and Practical Optimal Portfolios.
How safe is client data?The API transmits, via secured SSL, only the directions andprice histories. There need be nothing that identifies theassets themselves, the portfolio, the AUM or the client.Clients may also host ORS internally on any Java enabledserver.
How have you addressed concerns about the usabilityand stability of Optimizers?We have over 20 years experience building and runningmulti-variate optimisers in finance. There have been many lessons learned and these are implemented in ORS.
What are the steps if a client is interested in trying ORS?Typically after one meeting, SFT will look at a client'shistorical data and then we present the results online. SFTcan then enable a parallel run and the client can see ORSworking for them on their own desktop. Subscription thenfollows.
FAQ
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Better Returns | Better Investor Links | Better Process
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Please address any enquiries to:
Sherpa Funds Technology12 Eu Tong Sen Street, #07-171
Singapore 059819
THE WAY FORWARD
Negotiate Challenging Conditions with an Expert by Your Side
Appendix
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7/30/2014 8/29/2014 9/28/2014 10/28/2014 11/27/2014 12/27/2014 1/26/2015 2/25/2015 3/27/2015/ / / / / / / / / / / / / / / / / /
Low 25% Lev. Med 55% Lev. High 85% Lev. Even Weighted 50% Lev
Performance of 3 Optimally sized Portfolioswith different risk tolerances & evenly weighted (50% leveraged) Reference Portfolio
High Risk,Same Gross/Net
Better weightsSame Risk
Example 1: Private Client Portfolio with/without ORS
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113%
115%
118%
120%
123%
125%
128%
130%
98%
100%
103%
105%
108%
110%
CumulativeP&L With ORS Low Risk CumulativeP&L With ORS High Risk
CumulativeP&L With ORS Med Risk CumulativeP&L Without ORS
Better weightsSame Risk
Fund Manager 'X' s Portfolio with and without ORS, for three different Risk Tolerances
High Risk,Same Gross/Net
Example 2: Hedge Fund Portfolio with/without ORS
Wk 1 Wk 2 Wk 3 Wk 4 Wk 5 Wk 6 Wk 7 Wk 8 Wk 9 Wk 10 Wk 11 Wk 12 Wk 13 Wk 14 Wk 15 Wk 16 Wk 17 Wk 18
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