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FinValley Case Study

WaveRock Asset Management is a fixed income specialist based in Zurich, Switzerland that manages over CHF 90 billion in assets across various fixed income and alternative investment strategies. It has approached IVP to implement a data management solution to efficiently manage pricing, analytics, performance reporting, and regulatory compliance for its funds. The solution would involve pricing securities according to benchmarks, deriving analytics from benchmarks or external sources, calculating fund performance against benchmarks, and generating regulatory disclosures for investor position thresholds.

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80 views

FinValley Case Study

WaveRock Asset Management is a fixed income specialist based in Zurich, Switzerland that manages over CHF 90 billion in assets across various fixed income and alternative investment strategies. It has approached IVP to implement a data management solution to efficiently manage pricing, analytics, performance reporting, and regulatory compliance for its funds. The solution would involve pricing securities according to benchmarks, deriving analytics from benchmarks or external sources, calculating fund performance against benchmarks, and generating regulatory disclosures for investor position thresholds.

Uploaded by

boldy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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WaveRock Asset Management -

Performance, Analytics, Regulatory


Compliance and Internal Reconciliations

WaveRock Asset Management, is a fixed income ⋅If security is not on the Benchmark, derive prices
specialist based out of Zurich, Switzerland. With from Bloomberg
an AUM of over CHF 90 billion, WaveRock employs
a wide range of strategies in the fixed income and ⋅If prices not available on Bloomberg, derive price
alternative investment segment. On a broad level from ICE Data services
their holdings can be classified into the
Securities are priced at a position level i.e. A security
below strategies.
part of two different funds which are linked to two
Convertibles Emerging Markets different Benchmarks can have two different prices.

High Yield Multi-asset Credit Once the prices are calculated per security per
position, analytics are then derived at the same
The following are the primary list of asset classes level. The pricing policy defines the hierarchy for
that are held across multiple funds analytics as follows

Listed Exchange Security Types Over the Counter


⋅If security is a constituent of the Benchmark linked
to each fund derive analytics from the benchmark
Corporate Bonds Credit Default Swaps
Government Bonds Total Return Swaps ⋅If security is not on the Benchmark, derive analytics
from external vendors – Bloomberg, Risk Metrics,
Convertible Bonds Interest Rate Swaps
and Derivation
Asset Backed Securities FX Forwards
Mortgage Backed Securities ⋅If external vendors are not able to provide the
analytics, the internal analytics calculation
WaveRock has approached IVP to help them engine(ACE) will be responsible to compute
implement a data management solution which the analytics
manages these datasets efficiently and also ensure
timeliness and accuracy. Their primary areas of QUESTIONS
concern being
⋅Analytics Data Management
⋅Performance Calculation and Client Reporting
1 Design a data flow diagram which depicts the
overall solution to manage analytics

⋅Compliance & Regulatory Management


⋅Reconciliations
2 Based on proposed solution determine the
following analytic measures for each position
across funds as of 30th June, 2020

PRICING POLICY Convexity Modified Duration


Spread Duration OAS
Across various strategies, prices in WaveRock are Interest Rate Duration Effective Duration
maintained on a T-1 basis. End of day prices are
Yield to Maturity Macauley Duration
retrieved every morning from various sources based
on a pricing hierarchy. The pricing policy defines the Spread
hierarchy as follows

⋅If security is a constituent of the Benchmark linked


3 Out of the three sources sources which provide
analytics, rank them in the order of data quality
with appropriate reasons to back it up
to each fund derive price from the benchmark

FinValley Case Study 2020


WaveRock Asset Management - Performance, Analytics, Regulatory Compliance
and Internal Reconciliations

PERFORMANCE MANAGEMENT Once the investor crosses a particular threshold


then disclosures need to be made in the interest
Like any other credit asset manager based out of of everyone.
the EU, WaveRock compares the performance of its
funds against benchmarks. Each fund associates Voting rights can be acquired by direct equity
itself with a benchmark depending on the strategy holdings, or can be acquired via indirect holdings in
that the funds aligns itself to. The usual benchmark ADR, Convertibles, Indexes, Options, or other
providers for the credit market are Barclays, JP financial derivatives. For Convertibles Bonds, Market
Morgan, Merrill Lynch, Thomson Reuters etc. value can be considered instead of exposure. Asset
Management, given its nature of business and the
On the wake of Covid-19, WaveRock’s clients have strategy it follows, often falls on the wrong side of
asked for detailed reports which outlines the fund’s the regulators because of their indirect holdings and
performances to constantly evaluate their exposure. the voting rights they represent.
The clients are distributed across the globe with a
majority of them from the US, UK, Spain, France,
Germany and Canada. QUESTIONS

QUESTIONS 1 For France, Germany, Italy and Spain identify the


Long and the Short thresholds as defined by their
regulators which cause a breach
1 Calculate the NAV for positions as of 31st May and
30th June, 2020
2 Identify the positions for these four jurisdictions
where breaches have occurred on the Long Side
2 within a fund
Calculate the MTD returns for each position
and the Short Side. Also provide the percentage
numbers breached as of 30 June, 2020. (Long
th

3 Tabulate the month end fund performance


against its associated benchmark
and Short cannot be netted, and needs to be
reported separately as Long Disclosures or
Short Disclosures)

4 justify your selection


Identify the best and worst performing funds and

3 For position in Carrefour, populate the report


below so that reporting can be done on an ad-hoc
basis by the end of the day.
REGULATORY DISCLOSURES
One of the prime considerations of financial
regulators is market abuse. Financial institutions
because of the capital available on their disposal
have the financial means to make the markets
volatile; as a consequence of this the retailer
investors are the worst impacted. Hence, regulators
are interested in Long and Short position holdings
of listed instruments, and have various thresholds
defined for voting rights accumulation.

FinValley Case Study 2020


WaveRock Asset Management - Performance, Analytics, Regulatory Compliance
and Internal Reconciliations

Notified details of the resulting situation on the date on which the threshold was crossed or reached

A: Voting rights attached to shares

Class/type of shares Number of voting rights % of voting rights

ISIN code Direct (Art 9 of Indirect (Art 10 of Direct (Art 9 of Indirect (Art 10 of
(if Possible) Directive Directive Directive Directive
2004/109/EC) 004/109/EC) 2004/109/EC) 2004/109/EC)
DTR5.1) (DTR5.2.1) (DTR5.1) (DTR5.2.1)

SUBTOTAL 8.A

B 1: Financial Instruments according to Art. 13(1)(a) of Directive 2004/109/EC (DTR5.3.1.1 (a))

Type of Expiration Exercise/ Number of voting % of


financial instrument date Conversion Period rights that may be voting rights
acquired if the
instrument is
exercised /
converted.

SUBTOTAL 8.B1

FUND ADMIN – ACCOUNTING DISCREPANCIES Position EOD PnL - The Position dataset gives the
EOD (End of Day) positions held by portfolios within
Waverock’s fund admin has been primarily the fund
responsible to manage its books and PnL. In the
recent past, there have been a few incidents when Trial Balance - The Trial Balance dataset gives the
the fund admin has reported incorrect figures which information on SOD (Start of Day), EOD balances and
resulted in WaveRock losing money and eventually any debits, credits that occurred
falling under immense pressure from the EU
regulatory. In order to avoid this, the COO has QUESTIONS
decided to set-up a team which reconciles the data
provided by the fund admin and report any
inefficiencies as and when they are reported. 1 Based on the data provided by the Fund Admin,
calculate the PnL for all the Funds

However, considering the amount of data that has to


be reconciled over spreadsheets across all funds, 2 Prepare a report that has to be sent to the Fund
Admin clearly highlighting the differences
Waverock was soon realized that this process has to between the PnL calculated internally vs the PnL
be automated with minimal supervision. reported/derived by the Fund Admin

For any query, contact us at [email protected] FinValley Case Study 2020

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