Performance measurement & share class FX hedging
Your challenges
In the context of increasing regulations for investments funds, the largely unregulated performance fee area crystallises the concerns of investors: the payoff to the manager is often compared to a free-option, incentivising him to take too much risk at the expense of investors. Nevertheless, performance fees tend to better align the interests of the manager with the interest of investors. In order to ensure a fair performance fee system, investment funds have to focus on best practices.
For now 10 years, Deloitte’s performance measurement team provides services in performance analysis, and controls the fairness and correctness of methodologies employed, from the performance fee area to the multiclass performance analysis and performance attribution.
Regarding the share class forex hedging, currently the number of queries from investors is increasing. Therefore it is crucial to clearly identify the sources of the factors impacting the currency hedging performance.
In addition to using internal resources to identify the best market practices regarding share class FX hedging processes, an independent view of the market may help to avoid any bias in the analysis.
You can access our article in Performance magazine on the matter or view our latest brochure.
Moreover Deloitte provides companies with a broad range of services to respond to a fast and ever-changing environment:
Deloitte performance measurement & share class hedging services
Deloitte provides companies with a broad range of services to respond to a fast and ever-changing environment:
Set-up of performance fees
- Creation and/or assistance in calculation model selection and in the benchmark selection
- Review of the adequacy of the prospectus with the market practices and with the client's objectives
- Proposition of prospectus definitions for performance fee calculation
- Creation and/or assistance in the set-up of an Excel simulation spreadsheet, with stress testing of performance fee calculation spreadsheet using defined and random scenarios
- Library of multiple different calculation models (Time-Weighted Rate of Return, Money-Weighted Rate of Return, carried interest, series of shares, equalisation methodology)
Methodology review of the performance fees calculation already used
- Control of the adequacy of the calculation with the prospectus
- Control of the correctness of the Excel spreadsheet formula
- Stress testing based on defined and/or randomly generated scenarios
Recurrent controls of the calculated performance fees before payment
Automated performance fees calculations
- Automated and standardised performance fees calculations through Excel calculation files and accounting systems
- Control and review of the accounting systems performance fees modules
- Set-up assistance and testing of accounting systems performance fees modules
- Set-up assistance of fully automated calculation files (including input-output interfaces)
Equalisation method
- Assistance in the implementation of Equalisation method at the Transfert Agent level and at the Fund Administration level (calculation methodology, information flows between the FA and the TA, Investor Reporting, .)
- Control and review of the Equalisation system
- Recalculation of Equalisation outputs
Training of staff on performance fee calculations
Multi-classes of shares
We offer a wide range of services regarding the analysis of a fund with a multi-classes of shares structure:
Re-definition of the share class hedging process
Regarding the detailed analysis of the share class hedging process, Deloitte can offer the full service described hereunder, but can also propose an offer tailored to your requirements with the best suited modules among those described.
| Analysis of the environment | |||||
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| Review of the current hedging process in place | |||||
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| Comparison with the best market practices | |||||
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| Identification of the sources of impacts through the backtesting of the fund's hedging performance | |||||
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| Definition of a new hedging strategy | |||||
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| Set-up of an optimisation program | |||||
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| Design of a new target operating model | |||||
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Limitation of operational risk through:
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Control, monitoring and reporting of the potential risks:
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Benchmark hedging analysis
| 1 | Review of the fund's hedging performance |
| 2 | Review of the index benchmark hedging methodology |
| 3 | Comparison between the performance of the hedging done by the fund and by the benchmark |
| 4 | As-if scenarios: What if the fund had the same hedging methodology than the benchmark? |
| 5 | Targeted recommendations to limit the deviation of performance with the benchmark |
| 6 | Implementation of a daily monitoring of the deviations with the benchmark |
- Attribution analysis of equity portfolios using both arithmetic and geometric methods
- Equity attribution analysis along different dimensions (e.g. sector, countries, geographical area.)
- Fixed-income attribution analysis using different approach (e.g. weighted duration approach, Campisi framework and Yield curve decomposition)
- Multi-currency attribution analysis using the Karnosky and Singer method
- Multi-period attribution using different smoothing algorithms (e.g. Carino, Menchero, GRAP method.)
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