Portfolio management report

portfolio management report

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Its price sensitivity will consequently become similar to a seven-year security, rather than a five-year security. It is helpful to consider amortizing securities into two separate groups: pass-through and pay- through or structured securities. In a pass-through security, investors get their pro rata share of principal and interest payments. If an investor owns 1 of the securitys par value, it will receive 1 of the cash flow. The cash flow from the underlying mortgages passes through to investors. In a pay-through, or structured security, a set of payment rules determines how and when investors receive principal cash flows from the underlying mortgages. For structured securities like cmos, the maturity effect, where the security loses value at an increasing rate, can be very significant.

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Therefore, callable securities can lose value at an increasing rate as the securitys effective maturity becomes longer. Amortizing securities, such as mortgage securities, have similar performance characteristics. A mortgage borrower has the right to pay off, or call, the debt before maturity. The man mortgage lender therefore has sold a call option to the borrower. Since mortgage securities pass through cash flow from the underlying mortgage loans to investors, investors in mortgage securities have effectively sold call options to borrowers. The homeowners have the economic incentive to exercise these options and prepay when interest rates have fallen, allowing them to refinance and get new mortgages at lower interest rates. The prepayment option limits price appreciation for mortgage securities when interest rates fall. When interest rates rise, amortizing securities may also lose value at an increasing rate, as their average lives extend. For example, a mortgage security may, at current interest rates, have an estimated average life of five years. Average for life refers to the average length of time a dollar of principal remains outstanding. However, as rates rise and fewer homeowners prepay, the security may then have an average life of seven years.

Investors are not willing to pay large premiums if the issuer can redeem the bonds prior to maturity. Many callable securities remain callable past the initial call date. For example, the issuer of a five-year bond callable in two years, often referred to as five, non-call two, may typically call the bond at the end of two years, or on any coupon payment date thereafter, if the option is Bermudan. Investors need to understand write all possible dates that issuers can call their bonds since the call dates will have a direct bearing on the price sensitivity of the security. These call options typically require the issuer to call the entire security. If interest rates rise, however, the price sensitivity of non-amortizing callable bonds will ultimately approach the sensitivity of non-callable securities with the same final maturity. For example, the five, non-call two bond above initially will have the price sensitivity of a bond with a two-year final maturity. However, if interest rates continue to rise, the bond will eventually begin to depreciate like other securities with the same final maturity.

portfolio management report

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Investors have sold, or are short, the option on a callable bond. In return for allowing the issuer to call a bond prior to maturity, investors receive a higher yield. It is helpful to consider securities with call options in two groups: amortizing and non-amortizing or bullet plan securities. An amortizing security is one that pays principal throughout its biography life, such as a mortgage security. A non-amortizing security is one that has only one principal payment. That payment may occur before maturity, and may exceed par value due to a call premium (for example, callable at a dollar price of 102 percent of par but it does not pay principal throughout its life. Amortizing securities typically experience partial calls because, for example, some but not all borrowers may prepay their mortgages. Fhfb office of Supervision Examination Manual April 2007.4. Investment Portfolio management for a non-amortizing security, the call option limits price when rates fall.

Regardless of the type of security, it is the variability of the value of the securitys cash flow, caused by fluctuating interest rates and spreads relative to a benchmark such as Treasuries, that determines a securitys price sensitivity. A securitys interest rate, or price sensitivity, is primarily a function of: 1) Maturity; 2) Option features; 3) coupon rate; and 4) yield levels. For most securities, maturity is the most important determinant of price sensitivity. If a change in interest rates is the same across all maturities, a parallel interest rate shift, the price of a long-term security will change more than the price of a short-term one. For example, if interest rates rise 100 basis points, a 30-year, 5 percent coupon Treasury bond would lose nearly 14 percent of its value, while a two-year, 5 percent coupon Treasury note would lose less than 2 percent. Because money market assets mature within one year, they generally have the least price sensitivity. Options can either increase or decrease a securitys potential for price changes, depending upon the type of option and who owns. A call option allows the issuer of the security to redeem the full amount of the obligation before its maturity date.

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portfolio management report

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These portfolios require regular monitoring for performance handwriting and do contain interest rate risk. Risks Associated with Investment Securities An fhlbanks primary risks associated with investment securities and money market assets are set forth below. 1) Lack of sound Corporate governance (Board of Directors and Senior Management oversight) a) write key risks and controls are not adequately identified, measured, monitored, and controlled. B) A sound risk management framework composed of policies and procedures, risk measurement and reporting systems, and independent oversight and control processes has not been developed and implemented. C) Senior management has not adequately analyzed new products or activities, taking into account pricing, processing, accounting, legal, risk measurement, audit, and technology considerations. D) Risk management, monitoring, and control functions are not sufficiently independent of the position-taking functions. E) Duties, responsibilities, and staff expertise, including segregation of operational and control functions, are not adequately defined.

F) Independent audit coverage and testing is limited; auditors are inexperienced or lack the technical expertise to test the control environment. Fhfb office of Supervision Examination Manual April 2007.3. Investment Portfolio management 2) Market Risk The discussion of market risk will begin with those factors that impact the price sensitivity of a security and then proceed to outline measures of rate sensitivity, both for option-free securities and securities with options. Finally, this section will address portfolio sensitivity measures, risk control of portfolio sensitivity, and asset/liability management issues. Factors in Interest Rate sensitivity The investment portfolio, which often contains longer-term, fixed-rate assets, is usually a significant source of interest rate risk for an fhlbank. From an interest rate risk standpoint, sensitivity refers to how much the price of a security changes when interest rates change.

This portfolio is very liquid and comparatively low- yielding. The portfolio is used primarily to meet regulatory liquidity requirements and funds management needs. Management of the money market portfolio is normally a separate function under the fhlbanks treasury function. These portfolios are transaction-intensive and require continual monitoring for credit events but have negligible interest rate risk. The term portfolio is composed of gse mbs, private label mbs and commercial mbs, state housing authority debentures, and longer-term Treasuries.


These investments are also highly- rated, although the drivers for the high ratings can be different than those for the money market portfolio. In particular, the amount of collateral rather than quality of collateral for private label. Mbs and cmbs drives the ratings. This portfolio is liquid and comparatively higher-yielding. The portfolio is used primarily to generate earnings, but can also be used for other purposes, normally within a broad balance sheet management content. Management of the term portfolio is normally a separate function under the fhlbanks treasury function.

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4) The purchase of fixed-rate mbs, cmos, remics, and eligible asset-backed securities, legs or floating-rate mbs, cmos, remics, and eligible asset-backed securities that on the trade date are at rates equal to their contractual cap, with average lives that vary more than six years under. Fhlbank Environment, given the regulatory environment within which the fhlbanks operate, their investment portfolios tend to be of higher credit quality and driven by mission-related activities. Fhfb office of Supervision Examination Manual April 2007.2. Investment Portfolio management investment portfolios are normally divided between the money market portfolio and the term portfolio. The money market portfolio contains primarily short-term, highly-rated unsecured investments. These investments include the following: Federal funds sold, certificates of deposit, commercial paper, repurchase agreements, london and short-term. Treasuries) and Agency obligations.

portfolio management report

This bulletin is pertinent to some private label mortgage-backed securities (MBS) investments. Advisory bulletin 07-01, dated April 12, 2007, which establishes regulatory expectations for summary the fhlbanks to adopt and implement policies and risk management practices that establish appropriate risk limits for, and appropriate mitigation of, credit exposure on nontraditional and subprime mortgage loans. 3) Financial Management Plan Sections. Of the fmp establish the following limitations on authorized investments: 1) An fhlbank may enter into agreements to purchase mbs, collateralized mortgage obligations (CMOs real estate mortgage investment conduits (remics and eligible asset-backed securities so long as such purchases will not cause the aggregate book. An fhlbank may not increase its holdings of such securities in any one calendar quarter by more than 50 percent of its total capital at the beginning of that quarter. 2) The purchase of Interest Only or Principal Only stripped mbs, cmos, remics, and eligible asset-backed securities are prohibited. 3) The purchase of residual interest or interest accrual classes of cmos, remics, and eligible asset-backed securities is prohibited.

of the federal housing Finance board that provide supervisory guidance relating to the topic of investment portfolio management are: Advisory bulletin 98-10, dated December 8, 1998, which formalizes guidance to the fhlbanks on the minimum unsecured credit monitoring standards the fhlbanks are. Advisory bulletin 01-08, dated October 4, 2001, which establishes policy and procedures standards for identifying, comparing, reporting, and quantifying problem assets. Fhfb office of Supervision Examination Manual April 2007.1. Investment Portfolio management Advisory bulletin 01-09, dated October 24, 2001, which reinforces the need for the fhlbanks to monitor unsecured credit positions, especially with respect to concentrations. Advisory bulletin 02-07, dated August 27, 2002, which establishes reporting standards for unsecured credit exposures. Advisory bulletin 05-08, dated August 25, 2005, which establishes regulatory expectations related to anti-predatory lending policies.

Each fhlbank that has converted to its new capital plan has established its own Finance board-approved risk management policy (RMP). Only the provisions of the fmp contained in Sections. C.2.,.,., and., and Section. Apply to such fhlbanks. The fmp provides a framework within which the fhlbanks are allowed to implement financial management strategies that assist them in accomplishing their mission, and in generating income sufficient to meet their financial obligations in a safe, sound, and profitable manner. Regulatory Environment 1) Rules and Regulations of the federal housing Finance board, which include the following parts diary and sections relevant to investment portfolio management: Part 917 of the finance board regulations addresses powers and responsibilities of fhlbank boards of directors and senior management. In particular, section 917.3, risk management and Section 917.6, Internal Control System, are pertinent. Section 932.9 of the finance board regulations addresses unsecured extensions of credit and limits to various counterparties.

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Regulations project portfolio management in ms project Online describes the process of managing a portfolio of projects on the choice of projects to completion. The process of project portfolio management provides content management, deadlines, costs, contracts, resources, risk and quality of projects in the portfolio. Shareholders investors / Debt Portfolio management, in order to finance its activities, ojsc gazprom Neft relies mainly upon cash generated from its operations. However, the implementation of major projects at the initial exploration and field development stages, large-scale upgrading of refining facilities, expansion into new markets and other ambitious projects associated with the intensive development and growth of the companys business requires consideration of all possible financial resources. Successfully reported this slideshow. Investment Portfolio management upcoming SlideShare, loading. No downloads, no notes for slide. Investment Portfolio management introduction, sections 11(g 11(h and 16(a) of the fhlbank Act, section 956 of the finance board regulations, and the finance board Financial Management Policy (FMP) establish the. The entire fmp applies only to fhlbanks that have not yet converted to their new capital plans.


Portfolio management report
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