Ing Bank Slaski S.a. · GPW:ING
Ing Bank Slaski — ING Nationale-Nederlanden Polska PTE (ING NNP OFE) — Technical Presentation (April 2005)
48 slides from Ing Bank Slaski's technical presentation, Apr 27, 2005
Slide 1: Debt Portfolio – Valuation and Risks
Debt Portfolio – Valuation and Risks Grzegorz Chłopek Member of the Board, Investment Department Manager Warsaw, 27th April 2005
Slide 2: Agenda
Agenda: • Theory • Investment management process • Bond valuation • Risks • Practice • Bond valuation • Risks • Immunization • Shifts of the curve – case study • The Investment Clock • ING NNP OFE 2
Slide 3: Investment management process
Investment management process* 1. Setting the investment objective 2. Developing and implementing a portfolio strategy 3. Monitoring the portfolio 4. Adjusting the portfolio *Fixed Income Readings for the CFA® Program, 2nd Ed. – Frank J. Fabozzi 3
Slide 4: Investment management process: setting the investment objective
Investment management process* 1. Setting the investment objective • Liabilities as the investment objective Amount and timing of liabilities Example: life insurance policy (time is uncertain, amount is known) • Bond market index as the investment objective Example: defined contribution plan *Fixed
Slide 5: Investment management process: portfolio strategy
Investment management process* 2. Developing and implementing a portfolio strategy • Investment Policy Statement Should describe risks and performance's measures, constraints • Type of investment strategy Active strategies Passive strategies (e.g. indexing) Structured portfolio strategies (e.g. immu
Slide 6: Investment management process: monitoring the portfolio
Investment management process* 3. Monitoring the portfolio • Performance measurement over specified evaluation period • Performance evaluation Does the manager add the value? How does the manager add the value? return attribution analysis *Fixed Income Readings for the CFA® Program, 2nd Ed. – Frank
Slide 7: Investment management process: adjusting the portfolio
Investment management process* 4. Adjusting the portfolio • Frequency of adjusting • Costs of treading *Fixed Income Readings for the CFA® Program, 2nd Ed. – Frank J. Fabozzi 7
Slide 8: Bond valuation
Bond valuation 1. Yield to maturity 2. Zero-coupon curve 3. IRS and spread to IRS 4. Bonds with embedded options 5. Other bonds (mortgages) 8
Slide 9: Bond valuation: yield to maturity
Bond valuation 1. Yield to maturity • Discount method of all future CF • Assumption: one constant discount rate 9
Slide 10: Bond valuation: 1. Yield to maturity
Bond valuation 1. Yield to maturity 10
Slide 11: Bond valuation
Bond valuation MsgiSARAH DEES YIELD ANALYSIS SETTLEMENT DATE CASHFLOW ANALYSIS— PAYMENT INVOICE Australia 61 2 9777 8600 Brazil 5511 3048 4500 Europe 44 20 7330 7500 Germany 49 69 920410 Hong Kong 852 2977 6000 Japan 81 3 3201 8900 Singapore 65 6212 1000 U.S. 1 212 318 2000 Copyright 2005 Bloomberg
Slide 12: Bond valuation: zero-coupon curve
Bond valuation 2. Zero-coupon curve • Bootstrapping methodology z e ro -c o upo n yie ld c urve LS dis c o unting fac to rs RH 6.6 1 6.4 0.9 6.2 0.8 6.0 0.7 5.8 0.6 5.6 0.5 5.4 0.4 5.2 0.3 5.0 0.2 19-04-05 19-04-06 19-04-07 19-04-08 19-04-09 19-04-10 19-04-11 19-04-12 19-04-13 19-04-14 12
Slide 13: Bond valuation: IRS and spread to IRS
Bond valuation 3. IRS and spread to IRS • Standardized instrument • Constant duration • Comparable ratings (AA) 13
Slide 14: Bond valuation
Bond valuation for explanation. IYC Hit <PAGE> for more info or <MENU> for a list of curves MULTIPLE HISTORICAL CURVES # 1: POLISH GOUT 4 19/2005 Australia 61 2 93777 8600 Brazil 5511 3048 4500 Europe 44 20 7330 7500 Germany 49 69 920410 Hong Kong 852 2977 6000 Japan 81 3 3201 8900 Singapore 65 6212
Slide 15: Bond valuation
Bond valuation for explanation. IYC Hit <PAGE> for more info or <MENU> for a list of curves MULTIPLE HISTORICAL CURVES # 1: ON“OFF THE RUN GOUT # 3: US $ SWAP 30-360 4 19/2005 4 19/2005 Australia 61 2 93777 8600 Brazil 5511 3048 4500 Europe 44 20 7330 7500 Germany 49 69 920410 Hong Kong 852 2977 600
Slide 16: Bond valuation: bonds with embedded options
Bond valuation 4. Bonds with embedded options • Generate a tree of interest rates based on some interest rate volatility assumption • The backward induction methodology • Must produce current market price – no arbitrage opportunity 16
Slide 17: Bond valuation: other bonds (mortgages)
Bond valuation 5. Other bonds (mortgages) • CF includes net interest, scheduled principal repayments and prepayments • A projection of prepayments is necessary to project of CF • Scenario analyses – Monte Carlo simulations 17
Slide 18: Risks
Risks 1. Definition of risk for portfolio manager 2. Measures of risks 18
Slide 19: Risks: definition of risk for portfolio manager
Risks* 1. Definition of risk for portfolio manager • Definition of portfolio’s neutral position • Recognizing main risks for portfolio a. Interest rate risk b. Call risk (prepayment risk) c. Reinvestment risk d. Credit risk e. Liquidity risk f. Volatility risk g. Event risk *Fixed Income Readings fo
Slide 20: Risks: measures of risks
Risks* 2. Measures of risks • Standard deviation not very good because bonds haven’t constant duration • Downside risk measures manager has to define the target return (e.g. semivariance or VaR) • Tracking error measures the dispersion between a portfolio’s return and benchmark’ return *Fixed Income
Slide 21: Risks: interest rate risk measures
Risks* 2. Measures of risks (interest rate risks) • Modified duration interest rates can change but the CF do not change • Effective duration interest rates can change and the CF changes ED = (V- - V+) / (2 * V0 * Δy) • Convexity EC = (V- + V+ - 2 * V0 ) / (2 * V0 * (Δy)2) Duration’s measures assume
Slide 22: Risks: price change equation
Risks* 2. Measures of risks (interest rate risks) • Equation: %Δ price = -ED * Δy * 100 + C * (Δy)2 * 100 *Fixed Income Readings for the CFA® Program, 2nd Ed. – Frank J. Fabozzi 22
Slide 23: Risks: duration and convexity example
Risks 2. Measures of risks (interest rate risks) • Example: change of yield: 0.10% yie ld V0 V- V+ ED EC OK 0407 5.484 89.965 90.134 89.796 1.878 2.653 P S 0310 5.515 100.980 101.406 100.557 4.203 11.375 DS 1015 5.433 106.375 107.197 105.561 7.692 38.097 23
Slide 24: OK0407 Govt YA
OK0407 Govt YA YIELD ANALYSIS SETTLEMENT DATE CASHFLOW ANALYSIS— PAYMENT INVOICE Australia 61 2 9777 8600 Brazil 5511 3048 4500 Europe 44 20 7330 7500 Germany 49 69 920410 Hong Kong 852 2977 6000 Japan 81 3 3201 8900 Singapore 65 6212 1000 U.S. 1 212 318 2000 Copyright 2005 Bloomberg L.P GS05-736-3
Slide 25: PS0310 Govt YA
PSO310 Govt YA YIELD ANALYSIS SETTLEMENT DATE CASHFLOW ANALYSIS— PAYMENT INVOICE Australia 61 2 9777 8600 Brazil 5511 3048 4500 Europe 44 20 7330 7500 Germany 49 69 920410 Hong Kong 852 2977 6000 Japan 81 3 3201 8900 Singapore 65 6212 1000 U.S. 1 212 318 2000 Copyright 2005 Bloomberg L.P GS05-736-3
Slide 26: DS1015 Govt YA
DS1015 Govt YA YIELD ANALYSIS SETTLEMENT DATE CASHFLOW ANALYSIS— PAYMENT INVOICE Australia 61 2 9777 8600 Brazil 5511 3048 4500 Europe 44 20 7330 7500 Germany 49 69 920410 Hong Kong 852 2977 6000 Japan 81 3 3201 8900 Singapore 65 6212 1000 U.S. 1 212 318 2000 Copyright 2005 Bloomberg L.P GS505-736-3
Slide 27: Risks: key rate duration
Risks 2. Measures of risks (interest rate risks) • Contribution to portfolio duration (key rate duration) 27
Slide 28: Risks: OK 0407 key rate duration
0.000 0.200 0.400 0.600 0.800 1.000 1.200 1.400 1.600 1.800 2.000 0 Risks y 0. r 5 yr 1 y 1. r 5 yr 2 y 2. r 5 yr 3 y 3. r 5 yr 4 y 4. r 5 yr 5 yr 5. 5 28 yr 6 y 6. r 5 yr OK 0407 - ED = 1.888 7 y 7. r 5 yr 8 y 8. r 5 yr 9 y 9. r 5 yr 10 1 0 yr .5 yr 11 yr
Slide 29: Risks: PS 0310 key rate duration
0.000 0.500 1.000 1.500 2.000 2.500 3.000 3.500 0 Risks y 0. r 5 yr 1 y 1. r 5 yr 2 y 2. r 5 yr 3 y 3. r 5 yr 4 y 4. r 5 yr 5 yr 5. 5 29 yr 6 y 6. r 5 yr PS 0310 - ED = 4.198 7 y 7. r 5 yr 8 yr 8. 5 yr 9 y 9. r 5 yr 10 1 0 yr .5 yr 11 yr
Slide 30: Risks: DS 1015 key rate duration
0.000 1.000 2.000 3.000 4.000 5.000 6.000 Risks 0 yr 0.5 yr 1 yr 1.5 yr 2 yr 2.5 yr 3 yr 3.5 yr 4 yr 4.5 yr 5 yr 30 5.5 yr 6 yr DS 1015 - ED = 7.498 6.5 yr 7 yr 7.5 yr 8 yr 8.5 yr 9 yr 9.5 yr 10 yr 10.5 yr 11 yr
Slide 31: Immunization
Immunization • Strategy to receive an assured return for a specific time horizon irrespective of interest rate changes • Structure of liabilities is the key 31
Slide 32: Immunization: 100% 5Y bullet portfolio
Immunization • Example – portfolio with ED = 4.198 100% 5Y – bullet portfolio 3.500 3.000 2.500 2.000 1.500 1.000 0.500 0.000 yr yr yr yr yr yr yr yr yr yr yr 8. r 9. r 5. r 6. r 7. r 2. r 3. r 4. r 1. r 0. r 1 0 yr yr y y y y y y y y y y 5 5 5 5 5 5 5 5 5 5 9 8 3 4 5 6 7 2 1 0 10 11 .5 32
Slide 33: Immunization: barbell portfolio
Immunization • Example – portfolio with ED = 4.198 58.8% 2Y & 41.2% 10Y – barbell portfolio 2.500 2.000 1.500 1.000 0.500 0.000 0 yr 0.5 yr 1 yr 1.5 yr 2 yr 2.5 yr 3 yr 3.5 yr 4 yr 4.5 yr 5 yr 5.5 yr 6 yr 6.5 yr 7 yr 7.5 yr 8 yr 8.5 yr 9 yr 9.5 yr 10 yr 10.5 yr 11 yr 33
Slide 34: Immunization: ladder portfolio
Immunization • Example – portfolio with ED = 4.198 39.2% 2Y & 33.3% 5Y & 27.5% 10% – ladder portfolio 1.600 1.400 1.200 1.000 0.800 0.600 0.400 0.200 0.000 0 yr 0.5 yr 1 yr 1.5 yr 2 yr 2.5 yr 3 yr 3.5 yr 4 yr 4.5 yr 5 yr 5.5 yr 6 yr 6.5 yr 7 yr 7.5 yr 8 yr 8.5 yr 9 yr 9.5 yr 10 yr 10.5 yr 11 yr 34
Slide 35: Shifts of the curve – case study
Shifts of the curve – case study Ze ro kupo no we re nto wno ś c i IRS 1Y 2Y 3Y 4Y 5Y 10Y Repo Rate 21.0% 20.0% 19.0% 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05 35
Slide 36: Shifts of the curve – case study
Shifts of the curve – case study Ze ro kupo no we re nto wno ś c i IRS - s pre ady 2Y-5Y 0 kopon 5Y-10Y 0 kopon Repo Rate 450 425 400 375 350 325 300 275 250 225 200 175 150 125 100 75 50 25 0 -25 -50 -75 -100 -125 12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05 36
Slide 37: Shifts of the curve – case study
Shifts of the curve – case study IRS - WIBOR IRS - WIBOR 1y Forwards 31-12-04 08-04-05 31-12-04 08-04-05 7.75 7.75 7.50 7.50 7.25 7.25 7.00 7.00 6.75 6.75 6.50 6.50 6.25 6.25 6.00 6.00 5.75 5.75 5.50 5.50 5.25 5.25 5.00 5.00 1 2 3 4 5 6 7 8 9 10 1 1x2 2x3 3x4 4x5 5x6 6x7 7x8 8x9 9x10 0.000 0.00 -0.1
Slide 38: Shifts of the curve – case study
Shifts of the curve – case study Ze ro kupo no we re nto wno ś c i IRS - s pre ady HU 5x10 P L 5x10 CK 5x10 P L Repo - EU Repo CK Repo - EU Repo 500 1 600 475 1 500 450 1 400 425 1 300 400 375 1 200 350 1 100 325 1 000 300 900 275 250 800 225 700 200 600 175 500 150 400 125 100 300 75 200 50 100 25
Slide 39: The Investment Clock
The Investment Clock Re fla tio n Re c o ve ry Ove rhe a ting S ta g fla tio n be lo w a ve ra g e be lo w a ve ra g e a bo ve a ve ra g e a bo ve a ve ra g e GDP (vs. tre nd) a nd fa lling a nd g ro w ing a nd g ro w ing a nd fa lling a bo ve a ve ra g e be lo w a ve ra g e be lo w a ve ra g e a bo
Slide 40: Benchmarks
Benchmarks 31-01-85 15-04-05 Adde d Adde d pe rfo rm a nc e pe r Annua l pe rfo rm a nc e se c to r a nd o ne Co untry S e c to r P e rfo rm a nc e pe rfo rm a nc e pe r se c to r ye a r SSB US All Ma t 408.19% 8.38% US 1-3Y 272.63% 6.73% US 3-5Y 372.42% 7.99% 126 b.p. 63 b.p. US 5-7Y 436.00% 8.67%
Slide 41: ING NNP OFE: Market position (31st March 2005)
ING NNP OFE Market position (31st March 2005) • 15.2 bln PLN AuM • 22.6% share of total AuM • 2.1 mln members • 19.0% share of total active accounts 41
Slide 42: ING NNP OFE: IPE awards
ING NNP OFE IPE – Investment&Pensions Europe Magazine: • 2003 – Best Pension Fund in Central Eastern Europe • 2004 – Best Pension Fund in Central Eastern Europe • 2004 – Best in Corporate Governance/SRI (European Award) 42
Slide 43: ING NNP OFE: Gazeta Wyborcza, July 2003
ING NNP OFE Gazeta Wyborcza Daily – July 2003 43
Slide 44: ING NNP OFE: Gazeta Wyborcza ranking, January 2004
ING NNP OFE Gazeta Wyborcza Daily – January 2004 Łączna liczba W tym: ocena inwestycyjnej poprzednim działalności emerytalny Miejsce w rankingu punktów Fundusz prowizji Pozycja Ocena 1 ING Nationale Nederlanden 59 14 45 1 2 Allianz 51 19 32 2 3 Polsat 50 6 44 6 4 SAMPO 47 9 38 3 5 PZU Złota Jesień 4
Slide 45: ING NNP OFE: Gazeta Wyborcza, April 2005
ING NNP OFE Gazeta Wyborcza Daily – April 2005 45
Slide 46: ING NNP OFE: Rzeczpospolita, January 2004
ING NNP OFE Rzeczpospolita Daily – January 2004 46
Slide 47: ING NNP OFE: Rzeczpospolita, April 2005
ING NNP OFE Rzeczpospolita Daily – April 2005 47
Slide 48: ING NNP OFE
ING NNP OFE This presentation is available to download from ING NNP PTE’s web page: www.ing.pl 48
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