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Barry Widdows, Head of Multi-Asset Portfolio Management invites us into the analytical environment and close working relationships involved in managing multi-asset portfolios.
The day starts early
The day in the life of a multi-asset portfolio manager generally starts early. It is important to be able to absorb any overnight economic news, world events and other information that might impact portfolios. Portfolio managers constantly analyse information that might affect portfolio performance - while bearing in mind that past performance is not necessarily a reliable guide to future performance. The value of a client's investment can go down as well as up as it’s not guaranteed and they could get back less than they paid in.
Numerous key responsibilities
On a day-to-day basis the portfolio managers have numerous key responsibilities.
We refer to the daily task of ensuring all portfolios are managed in-line with target exposures and limits as keeping 'funds in shape'. The annual strategic asset allocation (SAA) process sets the broad shape of portfolios each year but of course asset class position can grow or shrink as markets move so it is important that they are closely monitored to ensure the intended risk/return attributes of each multi-asset portfolio are maintained.
A sensible balance does need to be achieved. Too much trading will incur unnecessary costs so portfolio positions are allowed to 'drift' within certain tolerances.
Adjusting portfolio positions following each annual SAA review also needs to be very carefully and sensibly managed. The main Prudential With-Profits (Asset Share) Fund is currently over £75 billion in size so a 1% change in allocation to an asset class may appear relatively small in percentage terms but requires patience and collaboration between operation and risk teams, traders and underlying fund managers to ensure smooth and cost effective execution. In some cases we may use futures to quickly and efficiently achieve an exposure to give a manager time to invest in real assets.
Tactical asset allocation
Portfolio managers are also involved in tactical asset allocation (TAA) discussions. They work with teams across PPMG to review opportunities and determine any changes. Their knowledge of each portfolio is valuable to understand how and if certain investment ideas can be implemented efficiently. Once in place, portfolio managers are also responsible for monitoring TAA across portfolios.
Cashflow management is extremely important. In an organisation as large as Prudential many millions of pounds flow in on a daily basis and the portfolio manager not only has to be able to ensure new money is allocated appropriately across portfolios but they also have to be very mindful of outflows and liquidity. A portfolio manager will work closely with the risk team to ensure that outflows can be covered in stressed scenarios.
The portfolio management team regularly review exposures, risks and performance across portfolios with the PPMG Risk team. A formal review of performance in relation to fund and mandate objectives, performance attribution, consistency of positions across funds and appropriateness of investment objectives, benchmarks and performance targets is held each month.
Aside from the formal performance review committee, the portfolio managers also work closely with the PPMG Manager Oversight team to understand positioning and drivers and detractors of performance within the segregated mandates and funds that make up the multi-asset portfolios. State of the art systems allow the teams to be able to generate detailed analysis at the press of a button.
Working within an insurance company means that liability management is also vitally important. This means that hedge implementation and derivative collateral management are essential activities.
Close working relationships are crucial
A day in the life of a portfolio manager can be extremely varied as the team is effectively the central hub of investment activity in PPMG. Close working relationships with colleagues is crucial to ensure the smooth running of portfolios and we are always mindful that it is not our money but that of Prudential's policyholders.