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Office of the Treasurer of The Regents
University of California
UCRP and GEPQuarterly Investment Risk Report Quarterly Investment Risk Report
Committee on Investments/ I t t Ad i GInvestment Advisory GroupQuarter ending March 2010
May 17, 2010
Contents
UCRP GEP• Asset allocation history 5 17
– What are the fund’s asset exposures?• Asset allocation current position and risk contributions 6 18
– How do they compare to policy targets?• Capital markets expectations for return 7 19
– What is the probability the fund will achieveWhat is the probability the fund will achieveits required return?
– Is the amount of risk required acceptable?• Historical Funded Status 8 NA• Forecast Funded Status 9 NA• Forecast Funded Status 9 NA
– What is the probability the fund will be ableto meet future obligations(with and without additional contributions)?
• Historical standard deviation of returns vs benchmark 10 20• Historical standard deviation of returns vs. benchmark 10 20• Historical standard deviation of active return 11 21
– What is fund’s realized volatility?– How does it compare with the policy benchmark and risk budgets?
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 2University of California
Office of the Treasurer of The Regents
Contents continued
UCRP GEP• Systematic vs. residual risk contribution 12 22• Asset allocation vs. selection risk contribution 12 22
– What are the sources of volatility?What are the sources of volatility?– What factors drive performance?
Is the fund adequately diversified?• Sharpe ratio (total risk) 13 23• Information ratio (active risk) 14 24( )
– Are risk exposures being rewarded?– Historical risk adjusted returns
• Performance Attribution 15 25– What are the sources of active return?– Asset allocation versus security selection– Which asset classes?
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 3University of California
Office of the Treasurer of The Regents
Risk Metrics for UCRPRisk Metrics for UCRP
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 4University of California
Office of the Treasurer of The Regents
Asset Allocation
• Total Risk is largely related to the allocation between equity and bonds• The portfolio’s exposures were similar to the benchmark during Q1 2010
UCRP ASSET ALLOCATION (%)
60%
70%
80%
2.0%
4.0%
6.0%
s)s)
UCRP ASSET ALLOCATION (%)
40%
50%
-4.0%
-2.0%
0.0%
xpos
ures
(lin
es
Exp
osur
e (b
ars
10%
20%
30%
-10.0%
-8.0%
-6.0%
Tota
l E
Act
ive
0%-12.0%
Ma
r-05
Sep
-05
Ma
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Sep
-06
Ma
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Sep
-07
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-08
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-09
Ma
r-10
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 5University of California
Office of the Treasurer of The Regents
Public Equity Over/ (Under) Public Equity U.S. Equity Non-U.S. Equity
Asset Allocation and RiskNote: Exposures and Risk charts below are shown using June 1 2009 target asset weightsNote: Exposures and Risk charts below are shown using June 1, 2009, target asset weights.Systematic risk is estimated using long term forecasts [from Mercer Investment Consulting, March 2009], not recent realized volatility.
(Lower Left) Asset weights are measured relative to Current Policy. The fund has an overweight in Absolute Return, and an underweight in TIPS and Real Estate.g
(Lower Right)• The fund’s forecast total systematic risk (blue bars) is up slightly at 12.55% annualized standard deviation. It is heavily weighted to US and Non-US developed equity (73% of total). • Forecast active systematic risk is up slightly at 39 bp. The Real Estate underweight and Absolute Return overweight accounted for almost 90% of this amount (yellow bars)
60
70
UCRP Forecast Contrib. to Systematic Risk at Mar 2010
Return overweight accounted for almost 90% of this amount (yellow bars).
2
2.5
UCRP Asset Exposures vs. Policy as of Mar 2010
10
20
30
40
50
60
Perc
en
t-0.5
0
0.5
1
1.5
2
Perc
ent
-10
0
US Equity
Int'l Dev.
Equity
Emg Mkt
Equity
Global Equity
US Fixed Inc.
US High Yield
Emg Mkt Debt
TIPS Cash Private RE
Private Equity
Hedge Funds
-2
-1.5
-1
US
Equi
ty
No
n U
S Eq
mg
Mkt
Eq
ba
l Eq
uity
ate
Eq
uity
US
Bond
s
Hig
h Yi
eld
n U
S Fi
xed
EM D
eb
t
TIPS
ea
l Est
ate
Ab
s Re
t
Ca
sh
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 6University of California
Office of the Treasurer of The Regents
Contrib. to Total Risk Contrib. to Active Risk
N
Em
Glo
b
Priv
a H
No
n Re
Active vs. Current Policy
Expected Risk and Return
Forecast risk and return (using Mercer’s April 2009 capital markets assumptions) lies near the constrained efficient frontier; long-term forecast return of 8.1%* is close to the actuarially required return of 7.5%. [Note: Mercer January 2010 capital mkt. assumptions largely unchanged]
*A t Cl t
12
14
n
2009 Capital Market AssumptionsRisk and Expected Return with Constrained Efficient Frontier
*Asset Class returns and efficient frontiers are shown in the chart as arithmetic (i.e.,
4
6
8
10
xpec
ted
Retu
rn
(average) expected returns.
The projected compound annual
-
2
- 5 10 15 20 25 30
Ex
Risk (Standard Deviation)
compound annual return over multi-year horizon is 8.1% for the Current Policy weights.
US Equity Int'l Dev. Equity Emg Mkt EquityGlobal Equity US Fixed Inc. US High YieldInt'l Fixed Inc. Emg Mkt Debt TIPSCash Private RE Private EquityHedge Funds UCRP Long-Term UCRP Current PolicyEffic. Frontier
Forecast volatility is 12.4%.
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 7University of California
Office of the Treasurer of The Regents
Historical Funded StatusThe Pension Fund’s liabilities have been growing The Pension Fund s liabilities have been growing steadily (upper left) with University employment, while the assets have grown (and fallen) with the equity markets. The ratio of actives to retirees has recently fallen from 3x to 2x (lower left).
UCRP ASSETS, LIABILITIES, and SURPLUS ($B)
20
30405060
The Funded Ratio (= the ratio of assets to liabilities), is an overall metric of the financial health of a pension plan. This ratio has fluctuated considerably over the past (lower right) and has
(10)-10
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Surplus (Smoothed) Assets (Smoothed) considerably over the past (lower right), and has recently fallen below 100% with the bear market of 2007-09
Surplus (Smoothed) Assets (Smoothed)Liabilities (AAL) Assets (Market)
Pension Membership (LHS) and Active/Retiree Ratio (RHS)140,000 7
UCRP FUNDED RATIOS200%
60,000
80,000
100,000
120,000
3
4
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100%
125%
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175%
-
20,000
40,000
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-
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%
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UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 8University of California
Office of the Treasurer of The Regents
Active Members Retired Members Ratio: Active/Retired Funded Ratio (smoothed) Funded Ratio (Market)
Forecast Funded Status
• Contributions were suspended in 1990, but annual benefit payments have grown in line with and recently exceeded, Normal Cost over the last decade (upper left).
UCRP Cash Flows (Contributions, Benefit Payments) vs. Normal Cost ($ Billion)
1 251.501.752.002.25
( pp )• The bottom two charts show projected
funded ratio without and with contributions, assuming a -19% return for FY 2009 and aconstant 7.5% investment return beginning FY 2010 (For this example contributions
-0.250.500.751.001.25
988
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991
992
993
994
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2000
2001
2002
2003
2004
2005
2006
2007
2008
2009 FY 2010. (For this example, contributions
were set to be equal to forecast Normal Cost, beginning FY 2011.)
•LEFT: Assumes no contributions, 7.5% annual investment
UC Pension Projections (Treasurer's Office)120%
UC Pension Projections (Treasurer's Office)120%
1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2
Total Outflows (ex-Labs) Total Inflows Normal Cost
annual investment return after FY 2009•RIGHT: Assumes Normal Cost contributed annually beginning FY 2011; 7 5% return
40%
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100%Fu
nded
Rat
io
40%
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100%
Fund
ed R
atio
FY 2011; 7.5% return after FY 2009•These projections are approximations only, developed by Treasurer’s Office, not Segal Co
0%
20%
2008
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2016
F
Funded Ratio (Smoothed)
0%
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F
Funded Ratio (Smoothed)
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 9University of California
Office of the Treasurer of The Regents
not Segal Co.Funded Ratio (Market Val)Funded Ratio (Market Val)
Risk Measures: Total
Total risk trend quite similar to benchmark; recently Plan volatility has been slightly less than the Budget, but well within ranges. Total volatility has resumed a historically normal range higher than the mid 2000’s
25
30
UCRP Total Risk, Total Risk Budget, and Ranges
normal range, higher than the mid 2000 s but lower than the 2008-09 crash.
5
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Total Risk budget equals Benchmark risk plus the Active risk budget. The ranges are +/- 20% around the budget
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25
30 UCRP Total Risk, Total Risk Budget, and Ranges
around the budget.
Risk is measured by standard deviation of monthly total returns; each point or bar shows a
Pension Total Risk Total Risk Budget
Lower Range: - 20% Upper Range: + 20%
5
10
15
20
monthly total returns; each point or bar shows a 12 month measurement period. All risk calculations done using exponentially declining weights. (This and following charts show risk budgets as if they had been in place during
ti hi t i l i d )
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Pension Total Risk Total Risk Budget
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 10University of California
Office of the Treasurer of The Regents
entire historical period.) Lower Range: - 20% Upper Range: + 20%
Risk Measures: Active
Until 2009, active risk for the total fund has held steady at 0.50% annualized standard deviation. The spike up in Q1 09 resulted from the underweight in equity as the market fell and then rallied Active risk has resumed its 3.50
4.00
4.50
5.00
UCRP Active Risk, Active Risk Budget, and Ranges
and then rallied. Active risk has resumed its low level of the mid 2000’s, but is still well below long term expectations for active return, and is well diversified.
0 50
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Pension Tracking Error Tracking Error Budget 3.5
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UCRP Active Risk, Active Risk Budget, and Ranges
Lower Range: - 33% Upper Range: + 33%
1.0
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2.0
2.5
3.0
The Active risk budget is 3% annualized Tracking Error (adjusted for market volatility), with ranges of +/- 1 pct. point around Budget
Risk is measured by standard deviation of monthly active returns; each point or bar shows a 12 month measurement period. All risk calculations done using exponentially
-
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Pension Tracking Error Tracking Error Budget
with ranges of / 1 pct. point around Budget
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 11University of California
Office of the Treasurer of The Regents
risk calculations done using exponentially declining weights. Lower Range: - 33% Upper Range: + 33%
Risk Attribution
(Upper Left) Almost all of Total Risk is attributed to systematic (market) factors.
(Lower Right) Normally, the majority of Active Risk is attributed to security selection.
70%
80%
90%
100%
UCRP - Components of Total Risk
yWhen active management is reduced, or when asset allocation transitions are implemented, allocation risk increases. In the last 12 months, the equity over / underweight dominated all other decisions.30%
40%
50%
60%
70%
g
0%
10%
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ar-0
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ep-0
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ar-0
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ep-0
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ar-0
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ep-0
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ar-0
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ep-0
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ar-0
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ep-0
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ar-1
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90%
110%
UCRP - Components of Active Risk
Risk is measured here by variance (standard deviation squared) of monthly returns; each
M Se M Se M Se M Se M Se MSystematic Risk % Residual Risk %
30%
50%
70%
deviation squared) of monthly returns; each bar shows a 12 month measurement period
Systematic Risk is associated with benchmark exposures; residual risk is associated with non benchmark decisions (security selection)
-10%
10%
Mar
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-10
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 12University of California
Office of the Treasurer of The Regents
benchmark decisions (security selection)Resid Risk Contrib Alloc Risk Contrib
Risk Adjusted Return: Total
Sharpe Ratio (risk adjusted total return) trend has been quite similar to the benchmark for the past 5 years. The 12 month return on risky assets has finally 2.0
3.0
4.0
UCRP and Benchmark Sharpe Ratio
y yturned positive as the March 2009 rally continues.
(1.0)
-
1.0
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UCRP and Benchmark Sharpe Ratio
(3.0)
(2.0)
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1.0 1.5 2.0 2.5 3.0 3.5
Sharpe ratio is “excess” return (total return less risk-free rate) divided by total risk; each point or
Pension Benchmark
(2.0)(1.5)(1.0)(0.5)
-0.5
9 9 9 9 9 9 9 9 9 0 0 0) y pbar shows a 12 month measurement period. All risk calculations done using exponentially declining weights.
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Pension Benchmark
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 13University of California
Office of the Treasurer of The Regents
Risk Adjusted Return: Active
Information ratio (risk adjusted active return) is the result of both asset weighting decisions and active performance. It is higher when the returns are positive and more consistent (less volatile) The Info ratio at quarter end 70%
80%
90%
100%
2.0
3.0
Pension Information Ratio and Significance Level
(less volatile). The Info. ratio at quarter end was positive; from the graph below, active returns for the past nine months have been small but positive.
30%
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70%
(1.0)
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Sign
ifica
nce
Leve
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Info
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io
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(3.0)
(2.0)
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UCRP Active Return & Active Risk Budget [Monthly]
Information ratio is active return (total return less benchmark) divided by active risk; each point
M S M S M S M S M S M
Last 12 Mo Signif. Level Last 12 Mo Info Ratio
(1.00)
(0.50)
-
benchmark) divided by active risk; each point shows a 12 month measurement period. The Significance level is the probability that results are due to skill, with 50% being a neutral measure. All risk calculations done using
ti ll d li i i ht
(1.50)
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UCRP Active Return - Risk Budget + Risk Budget
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 14University of California
Office of the Treasurer of The Regents
exponentially declining weights. Lower Range: - 33% Upper Range: + 33%
A ti R t f th Q t 0 23% (F d
Performance Attribution
Active Return for the Quarter was +0.23% (Fund return of 3.16% vs policy benchmark of 2.92%). [BELOW] Asset allocation decisions (blue bars) added 0.14% (primarily the underweight in Real Estate) and S it l ti ( d b ) d i i dd d 0 09%
US EquityNon-US EquityEmg Mkt Equity
Global Equity
Avg. Active Weight
Security selection (red bars) decisions added 0.09% (primarily Absolute Return)
UCRP Attribution for 3 mo. ending Mar-31-10
q yPrivate Equity
Core BondsHigh Yield Debt
Emg Mkt DebtTIPS
Real EstateAbs Ret
US EquityNon-US Equity
Emg Mkt EquityGlobal EquityP i t E it
(2.0) (1.0) - 1.0 2.0
Abs RetCash
Avg. Active ReturnPrivate Equity
Core BondsHigh Yield Debt
Emg Mkt DebtTIPS
Real Estate
US EquityNon-US Equity
Emg Mkt EquityGlobal Equity
Private EquityCore Bonds
-0.05 0 0.05 0.1 0.15 0.2 0.25 0.3
Abs RetCash
TOTAL
Core BondsHigh Yield Debt
Emg Mkt DebtTIPS
Real EstateAbs Ret
Cash
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 15University of California
Office of the Treasurer of The Regents
Allocation Selection Total Impact(1.0) - 1.0 2.0 3.0
Risk Metrics for GEPRisk Metrics for GEP
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 16University of California
Office of the Treasurer of The Regents
Asset Allocation
• Total Risk is largely related to the allocation between equity and bonds• Total equity remained slightly overweight at the end of Q1 2010
70%8 0%GEP ASSET ALLOCATION (%)
50%
60%
70%
2 0%
4.0%
6.0%
8.0%
nes)
bars
)
30%
40%
4 0%
-2.0%
0.0%
2.0%
Expo
sure
s (li
n
Exp
osur
e (b
10%
20%
-8.0%
-6.0%
-4.0%
Tota
l E
Act
ive
0%-10.0%
Mar
-05
Sep-
05
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-06
Sep-
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Mar
-07
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-08
Sep-
08
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-09
Sep-
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-10
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 17University of California
Office of the Treasurer of The Regents
Public Equity Over/ (Under) Public Equity U.S. Equity Non-U.S. Equity
Asset Allocation and RiskNote: Exposures and Risk charts below are shown using October 1 2008 target asset weights Note: Exposures and Risk charts below are shown using October 1, 2008 target asset weights. Systematic risk is estimated using long term forecasts [from Mercer Investment Consulting, March 2009], not recent realized volatility.
(Lower Left) Asset weights are measured relative to Current Policy. The fund is overweight in US Equity and Absolute Return, and underweight in Real Estate and TIPS.q y g(Lower Right) The fund’s forecast total systematic risk (blue bars) is unchanged at 12.2% annualized standard deviation. It is evenly balanced among US equity, Non US developed equity, and Absolute Return (over 75% of total). Forecast active systematic risk is unchanged at 48 bp. The R.E. underweight and Absolute Return overweight accounted for almost 80% of this amount (yellow bars).
40
50
60
GEP Forecast Contrib. to Systematic Risk at Mar 2010
this amount (yellow bars).
1.52
2.5
GEP Asset Exposures vs. Policy as of Mar 2010
(10)
-
10
20
30
Perc
ent
-1.5-1
-0.50
0.51
1.5
Perc
ent
US Equity
Int'l Dev.
Equity
Emg Mkt
Equity
Global Equity
US Fixed Inc.
US High Yield
Int'l Fixed Inc.
Emg Mkt Debt
TIPS Cash Private RE
Private Equity
Hedge Funds
Contrib. to Total Risk Contrib. to Active Risk
-2.5-2
US E
quity
Non
US
Eq
Emg
Mkt
Eq
Glo
bal E
quity
Priv
ate
Equi
ty
US B
onds
High
Yie
ld
Non
US
Fixed
EM D
ebt
TIPS
Real
Est
ate
Abs
Ret
Cas
h
Active vs. Current Policy
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 18University of California
Office of the Treasurer of The Regents
Expected Risk and Return
Forecast risk and return (using Mercer’s April 2009 capital markets assumptions) lies near the constrained efficient frontier; forecast return of 8.3%* is close to the nominal return needed to maintain a constant real payout per student (estimated at 8.5%) [Note: Mercer January 2010 capital mkt. assumptions largely unchanged]
* Asset Class
10
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14
rn
2009 Capital Market AssumptionsRisk and Expected Return with Constrained Efficient Frontier
returns and Efficient frontiers are shown in the chart as arithmetic
2
4
6
8
10
xpec
ted
Retu
r arithmetic (average) expected returns.
Th j t d -
- 5 10 15 20 25 30
Ex
Risk (Standard Deviation)
The projected compound annual return over multi year horizon is 8.3%
US Equity Int'l Dev. Equity Emg Mkt Equity Global Equity
US Fixed Inc. US High Yield Int'l Fixed Inc. Emg Mkt Debt
TIPS Cash Private RE Private Equity
Hedge Funds GEP Long-Term GEP Current Policy Effic. Frontier
for the Current Policy weights.
Forecast volatility is 12 0%
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 19University of California
Office of the Treasurer of The Regents
is 12.0%.
Risk Measures: Total
Total risk trend has been quite similar to benchmark; GEP volatility is quite close to its Budget.Total volatility has resumed a historically normal range, higher than the mid 2000’s but lower than the 2008 09 crash
20
25
GEP Total Risk, Total Risk Budget, and Ranges
2008-09 crash.
Total Risk budget equals Benchmark risk plus the Active risk budget. The ranges are +/- 20% around the budget
5
10
15
around the budget.-
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Endowment Total Risk Total Risk Budget 20
25 GEP Total Risk, Total Risk Budget, and Ranges
Risk is measured by standard deviation of monthly total returns; each point or bar
Lower Range: - 20% Upper Range: + 20%
5
10
15
y pshows a 12 month measurement period.All risk calculations done using exponentially declining weights. (Charts show risk budgets as if they had been in place during entire historical period )
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Endowment Total Risk Total Risk Budget
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 20University of California
Office of the Treasurer of The Regents
historical period.)Lower Range: - 20% Upper Range: + 20%
Risk Measures: Active
Active risk for the total fund has grown slowly over this period from 0.50% to 1.50% annualized standard deviation, up until the 2008 crash.
3 00 3.50 4.00 4.50 5.00
GEP Active Risk, Active Risk Budget, and Ranges
Active risk has resumed its low level of the mid 2000’s, but is still well below long-term expectations for active return, and is well diversified.
0.50 1.00 1.50 2.00 2.50 3.00
-
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Endow. Tracking Error Tracking Error Budget
Lower Range: - 33% Upper Range: + 33% 4.0 4.5 5.0
GEP Active Risk, Active Risk Budget, and Ranges
The Active risk budget is 3.0% annualized Tracking Error (adj. for market volatility), with ranges of +/- 1 pct. point around Budget
Lower Range: 33% Upper Range: + 33%
1.0 1.5 2.0 2.5 3.0 3.5 4.0
Risk is measured by standard deviation of monthly active returns; each point or bar shows a 12 month measurement period. All risk calculations done using exponentially declining weights
-0.5
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Jul-0
9
Aug
-09
Sep
-09
Oct
-09
Nov
-09
Dec
-09
Jan-
10
Feb
-10
Ma
r-10
Endow. Tracking Error Tracking Error Budget
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 21University of California
Office of the Treasurer of The Regents
using exponentially declining weights. Lower Range: - 33% Upper Range: + 33%
Risk Attribution (Upper Left) Almost all of Total Risk is attributed to systematic (market) factors. ( i ht) ll th j it f (Lower Right) Normally, the majority of Active Risk is attributed to security selection. When asset allocation transitions are implemented, allocation risk tends to dominate In the last 6 months the equity
80%
90%
100%
GEP - Components of Total Risk
dominate. In the last 6 months, the equity overweight dominated all other active decisions.
30%
40%
50%
60%
70%
0%
10%
20%
30%
r-05
-05
r-06
-06
r-07
-07
r-08
-08
r-09
-09
r-10
90%100%110%
GEP - Components of Active Risk
Risk is measured here by variance (standard
Ma
r-
Sep
Ma
r-
Sep
Ma
r-
Sep
Ma
r-
Sep
Ma
r-
Sep
Ma
r-Systematic Risk % Residual Risk %
30%40%50%60%70%80%
y (deviation squared) of monthly returns; each bar shows a 12 month measurement periodSystematic risk is associated with benchmark exposures; residual risk is associated with non benchmark decisions (security selection)
-10%0%
10%20%
Mar
-05
Sep-
05
Mar
-06
Sep-
06
Mar
-07
Sep-
07
Mar
-08
Sep-
08
Mar
-09
Sep-
09
Mar
-10
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 22University of California
Office of the Treasurer of The Regents
benchmark decisions (security selection)Resid Risk Contrib Alloc Risk Contrib
Risk Adjusted Return: Total
Sharpe Ratio (risk adjusted total return) trend has been quite similar to the benchmark for the past 5 years 2.0
3.0
4.0
GEP and Benchmark Sharpe Ratio
the benchmark for the past 5 years. The 12 month return on risky assets has finally turned positive as the March rally continues.
(2.0)
(1.0)
-
1.0
(3.0)
Ma
r-05
Sep
-05
Ma
r-06
Sep
-06
Ma
r-07
Sep
-07
Ma
r-08
Sep
-08
Ma
r-09
Sep
-09
Ma
r-10
Endowment Benchmark 4.0
GEP and Benchmark Sharpe Ratio
Sharpe ratio is “excess” return (total return less risk-free rate) divided by total risk; each point or bar shows a 12 month measurement period. All -
1.0
2.0
3.0
bar shows a 12 month measurement period. All risk calculations done using exponentially declining weights. (2.0)
(1.0)
Ma
r-09
Ap
r-09
Ma
y-09
Jun-
09
Jul-0
9
Aug
-09
Sep
-09
Oct
-09
Nov
-09
Dec
-09
Jan-
10
Feb
-10
Ma
r-10
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 23University of California
Office of the Treasurer of The Regents
Endowment Benchmark
I f ti ti ( i k dj t d ti t )
Risk Adjusted Return: ActiveInformation ratio (risk adjusted active return) is the result of both asset weighting decisions and active equity and bond performance. It is higher when the returns are more consistent (less volatile). The active return
70%
80%
90%
100%
2.0
3.0
Endowment Information Ratio and Significance Level
( )has recently turned positive (see graph below), while active risk is decreasing (see page 20). In the last two quarters, both allocation and selection decisions have been positive
30%
40%
50%
60%
70%
(1.0)
-
1.0
Sign
ifica
nce
Leve
l
Info
Rat
io
been positive.
0%
10%
20%
(3.0)
(2.0)
Ma
r-05
Sep
-05
Ma
r-06
Sep
-06
Ma
r-07
Sep
-07
Ma
r-08
Sep
-08
Ma
r-09
Sep
-09
Ma
r-10
S
1.50
GEP Active Return & Active Risk Budget [Monthly]
Information ratio is active return (total return less benchmark) divided by active risk; each point
M S M S M S M S M S MLast 12 Mo Signif. Level Last 12 Mo Info Ratio
(1 00)
(0.50)
-
0.50
1.00
benchmark) divided by active risk; each point shows a 12 month measurement period. The Significance level is the probability that results are due to skill, with 50% being a neutral measure. All risk calculations done using exponentially declining weights
(2.00)
(1.50)
(1.00)
Ma
r-05
Sep
-05
Ma
r-06
Sep
-06
Ma
r-07
Sep
-07
Ma
r-08
Sep
-08
Ma
r-09
Sep
-09
Ma
r-10
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 24University of California
Office of the Treasurer of The Regents
exponentially declining weights.GEP Active Return - Risk Budget + Risk Budget
Lower Range: - 33% Upper Range: + 33%
A ti R t f th Q t 0 68% (F d t f
Performance Attribution
Active Return for the Quarter was +0.68% (Fund return of 2.64% vs policy benchmark of 1.96%). [BELOW] Asset allocation decisions (red bars) added 0.24% (primarily the overweight in US Equity and the underweight in Real Estate) and Security selection decisions (orange bars)
US EquityNon-US Equity
Emg Mkt EquityGlobal Equity
Private Equity
Avg. Active Weight
) y ( g )added 0.44% (primarily Absolute Return Strategies)
q yCore Bonds
High Yield DebtEmg Mkt Debt
Non USD DebtTIPS
Real EstateAbs Ret
CashGEP Attribution for 3 mo. ending Mar-31-10
Avg. Active Return
(4.0) (2.0) - 2.0 4.0
Cash
US EquityNon-US Equity
Emg Mkt EquityGlobal EquityPrivate Equity
US EquityNon-US Equity
Emg Mkt EquityGlobal Equity
Private EquityCore Bonds
High Yield DebtEmg Mkt Debt
q yCore Bonds
High Yield DebtEmg Mkt Debt
Non USD DebtTIPS
Real Estate
(1.0) - 1.0 2.0 3.0
Emg Mkt DebtNon USD Debt
TIPSReal Estate
Abs RetCash -0.2 0 0.2 0.4 0.6 0.8
Abs RetCash
TOTAL
Allocation Selection Total Impact
UCRP and GEP Quarterly Investment Risk Report1st Quarter 2010 | May 17, 2010 | 25University of California
Office of the Treasurer of The Regents
Allocation Selection Total Impact