Analytical Innovations

2001 Liability analysis

One of the challenges faced by smaller pension schemes in the early days of the business was to understand how their liabilities might move through time. Most actuarial valuations gave no indication of this and therefore we developed a tool (still used in improved form!) to take actuarial valuation information and infer from it the broad population structure and therefore the scheme cashflows. This is helpful in designing investment strategies that adapt to a changing profile and maturity.

2002 Sophisticated manager screening

We have long developed quantitative tools for understanding manager performance. However, some key developments were made in 2002 and many of these have been carried through into CAMRADATA's MET (Manager Evaluation Tool).

2003 Liability-driven objectives

In 2003, we developed the concept of a liability benchmark portfolio, which represents a market-based benchmark that aims to mimic the behaviour of the liabilities. This effectively removed the need to perform an asset liability model, and we have not needed to perform an ALM for a client since this date, saving clients significant costs.

2004 Liability hedging stress test

We pioneered the use of a liability hedging stress test that looks at the performance of hedging in different market conditions, rather than broader statistical analysis. Our idea was to ensure strategies used are robust to a wide variety of different conditions. In practice, this has turned out to be the case.

2005 Copula-based risk analysis

We integrated into our risk analysis processes the use of copula-based risk analysis, that in (sort of) simple terms allows us to view correlation as being non-linear, i.e. when markets rise, asset prices can diversify (correlations a lot less than 1), but when they fall, they fall together (correlations approaching 1). This addresses some of the problems seen in other risk analysis models that failed during the credit crunch.

2006 Derivative pricing models

In 2006, given the significant growth in our derivative activities, we developed more sophisticated models for pricing derivatives, in order to ensure clients achieve effective pricing in engaging with investment banks.

2007 D Distribution

We went on to develop the concepts underlying copulas into a more generalised model that we find more useful than copulas alone.

2008 Economic scenarios

The concept of scenario analysis has been around for some time. However, one of the problems is that the effect of scenarios on market returns are broad brush and not built from underlying fundamentals. We therefore developed this more formally and now make this available to clients, in order to help test the robustness of strategies.

2009 MET and UET

CAMRADATA has developed into a web-based system of analytical tools to help clients evaluate individual manager performance (the Manager Evaluation Tool) and also to understand the characteristics and behaviour of managers in a universe (the Universe Evaluation Tool).

This is merely a snapshot of some of our analytical developments – there are many more. Our ability to underpin our services with robust analysis is key and therefore we are continuously developing new ways to achieve this.