| Asset Management Overlay 101 |
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| 20/11/2005 | |
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Frédéric Dodard, State Street Global Advisors' Head of Tactical Asset Allocation and Head of Balanced Portolio Management in Europe, answers this week's 101 on asset management overlay 1- What is an asset management overlay mandate? What is the purpose of an overlay mandate for an institutional investor? Efficiently managing cash flows and asset class exposures is a key component of a successful asset allocation strategy. The objective of a strategic overlay mandate is to manage an investor's asset class and currency exposure using derivative instruments such as futures, swap contracts and currency forwards to efficiently implement investment decisions in a timely and cost effective manner. Within an overlay program, the overall portfolio is monitored at a global level, which aggregates all relevant financial information at the sub-portfolio level. 2-What are the main techniques used by the overlay manager to achieve those objectives? Implementing an overlay process includes the "securitization" of a plan's cash positions to eliminate cash drag and unintended asset class drift while at the same time taking into consideration the cash needs of the plan. The process can be best explained by identifying the sources of cash and then addressing how an investor's cash needs can be dynamically monitored and incorporated into an overlay program. These trades are less costly and easier to implement for complex futures with different layers and numbers of asset portfolios Tactical overlays provide an efficient means of implementing active asset allocation decisions at the plan level without disrupting underlying manager portfolios. 3-Can all institutional investors, regardless of their characteristics, implement such a programme? Such an investment solution is better designed for larger institutional investors. Even if there is no exact rule, it is not recommended to go through an overlay programme with assets under €1 billion. |
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Articles of the same Serie : 101 |
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