Pelatihan SPERIS untuk Dana Pensiun

Investasi, Strategi dan Manajemen Resiko

12 June 2008

Contents

Pengenalan Pada Resiko Investasi

Pengukurun Resiko dan Monitoring

Suatu contoh Kinerja Jangka Panjang dari Aset Beresiko

Introduction to Investment Risks

What is Risk ?

Kemungkinan mengalami kerugian “Probability of losing money”

Kemungkinan tidak terpenuhinya objektif yang telah ditetapkan

Flutuasi atau standard deviation)

Probability of delivering a return less than the “risk free” rate

Probability of a funding shortfall

Underperforming a required performance benchmark

Generally speaking, the higher the expected returns of an investment, the higher the likely risk, and vice versa.

Risk is relative. Risk is subjective.

A Note on Risk...

Issuer Specific

Risk

Risk from an Investor’s Perspective

Investors

Equities

Other Investments: Unit

Trust

Bonds and Cash

Business Risk

Credit Risk

Liquidity Risk

Operational Risk

Legal Risk

Market Risk

Economic Risk

Political Risk

FX Risk

Types of Risk

Business Risk - Firm and industry specific risks related to the investments that a firm makes e.g. M&A plans, business cycles

Credit Risk - Risk of loss when one of the parties to a transaction fails to make an obligatory payment to the other party

Liquidity Risk - Dependant on the number of traders in the market and the size of the transactions

Operational Risk - Risk that is primarily internal to the firm e.g. employee embezzlement (Barings), inadequate management control

Legal Risk - Arise due to uncertainties in the enforceability of a contract should one party default

Diversifiable Risk

Types of Risk

Market Risk - Consists of risks due to economy-wide factors that affect financial markets Political Risk- e.g. North Korea fight with US Foreign Exchange Risk - due to currency fluctuations Economic Risk - includes interest rate and inflation

risk

Non- Diversifiable

Risk

Risk Measurement and Monitoring

Risk Measurement and Monitoring

What fund managers look for in measuring risk and monitoring funds:

Aggregate Risk Total Risk in the portfolio Measured using standard deviation, tracking error and beta

Component Risk Various types of risk in the portfolio that sum up to Aggregate Risk Includes stock, sector, style and market risk

Other Risk Measures E.g. Sharpe Ratio, Information Ratio

Aligning Risks with Investment Strategy - Examples

Fund managers adopt flexible investment style and are biased towards different characteristics over the economic cycle

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5Slowdown Recession Recovery Expansion

Cash Equity/Bonds

Equity Equity

How Investors Can Manage Risks

Don’t put all eggs in one basket, i.e. diversify

Take a long-term view

Do not market time, try dollar cost averaging instead

Choose the level of risk they are comfortable with

Perhaps the best advice....

Do not invest in anything you don’t understand!

Take a Long-Term View

Take a long term view, invest in time

Studies have shown that the longer the investment time horizon, the lower the volatility

This is because typically, stock prices rise, on average, about 7 out of every 10 years

“We make more money when snoring than active” - Warren Buffet

How to reduce non-diversifiable risks

Do Not Market Time

Market timing – Every investor’s dream is to

Buy low Sell high

How to reduce non-diversifiable risks

But perfect timing is pure

Source: Standard & Poor’s. Period: 31/7/88 - 31/7/03

MSCIWorldIndex

RemainInvested AtAll Times

Less Best 10Weeks

Less Best 20Weeks

Less Best 30Weeks

Totalreturn

67.9% -5.9% -38.2% -56.9%

Perils of Market Timing

Choose the Level of Risk You’re Comfortable With

Be realistic about your investment objectives and the time you have to achieve them

How to reduce non-diversifiable risks

Choose the Level of Risk You’re Comfortable With

Money Market Funds and Cash

Bonds and Bond Funds

Balanced Funds

Diversified Equity Funds

Sector/ Small Country Funds

Speculative InvestmentsHigher Risk

Lower Risk

How to reduce non-diversifiable risks

Conclusion

Risk is both relative and subjective

Understanding the key types of risk associated with various asset classes helps in the investment process

Fund Managers would employ risk measurement and monitoring techniques to monitor risks inherent in their portfolios

Investors can also further manage their portfolio risk by: Diversifying - Within and across asset types Taking a long-term view - Have a longer horizon in mind and avoid

market timing Not marketing timing Choosing the level of risk they are comfortable with

Schroders’ Risk Monitoring TechniqueFund Manager would monitor inherent risks by using Prism - A proprietary ‘Portfolio Risk Investment Strategy Manager’ tool For example, Prism looks at:

Predicted Risks - Predicted tracking error versus Schroder tracking error Predicted betaBenchmark volatility versus absolute fund volatility

Active Risk Decomposition -Stock specific factorIndustrial sectorsCountriesMarket risks

Supplemental Statistics -Portfolio concentration

Yearly Performance of Segregated Discretionary

Period for 1992 is: August-Dec 1992Source: Wyatt Survey, Schroders & Bloomberg

Segregate Benchmark TD Rate1992 -5.66% -29.41% 17.90%1993 100.88% 114.29% 13.06%1994 -3.53% -20.11% 11.71%1995 19.01% 9.41% 16.12%1996 16.50% 24.05% 16.11%1997 -5.83% -36.98% 20.53%1998 34.61% -0.91% 48.91%1999 81.18% 70.06% 22.67%2000 -28.91% -38.50% 10.89%2001 15.05% -5.80% 13.64%2002 25.70% 8.39% 14.04%2003 70.66% 62.82% 9.82%2004 64.75% 44.56% 6.24%2005 21.08% 16.23% 7.74%2006 44.90% 55.29% 10.51%2007 53.35% 52.08% 4.05%Since Inception 4,427.38% 606.65% 818.16%Average 31.48% 20.34% 15.25%Standard Deviation 35.62% 43.36% 10.26%

Performance of Segregated Discretionary vs Benchmark

Period for 1992 is: August-Dec 1992Source: Wyatt Survey, Schroders & Bloomberg

Segregated Discretionary

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Jul-92

Mar-93

Nov-93

Jul-94

Mar-95

Nov-95

Jul-96

Mar-97

Nov-97

Jul-98

Mar-99

Nov-99

Jul-00

Mar-01

Nov-01

Jul-02

Mar-03

Nov-03

Jul-04

Mar-05

Nov-05

Jul-06

Mar-07

Nov-07

JCI

Portfolio

866

4680

Monthly Performance – Segregated Discretionary

Source: Wyatt Survey, Schroders & Bloomberg

Segregated Dicretionary Monthly Performance

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

Aug-92 Aug-93 Aug-94 Aug-95 Aug-96 Aug-97 Aug-98 Aug-99 Aug-00 Aug-01 Aug-02 Aug-03 Aug-04 Aug-05 Aug-06 Aug-07

+34.86%

-26.10%

Histogram – Segregated Discretionary

Source: Wyatt Survey, Schroders

Discretionary Segregated

- 1 1 -

8

17

41

51

37

20

62

- 1-

10

20

30

40

50

60

<=-30% -29.9% to -25%

-24.9% to -20%

-19.9% to -15%

-14.9% to -10%

-9.9% to -5% -4.9% to 0% 0.1% to 5% 5.1% to 10% 10.1% to 15% 15.1% to 20% 20.1% to 25%25.1% to 30% >=30.1%

Monthly Performance – Jakarta Composite Index

Jakarta Composite IndexMonthly Performance

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

+28.43%

-31.52%

Source: Bloomberg

Histogram - JCI

IHSG

1 1 -

35

28

43

47

35

19

31

2

-

5

10

15

20

25

30

35

40

45

50

<=-30% -29.9% to -25% -24.9% to -20% -19.9% to -15% -14.9% to -10% -9.9% to -5% -4.9% to 0% 0.1% to 5% 5.1% to 10% 10.1% to 15% 15.1% to 20% 20.1% to 25% >=25.1%

Period for 1992 is: August-Dec 1992Source: Wyatt Survey, Schroders & Bloomberg

Yearly Performance - JCI

Yearly ReturnSegregated Discretionary vs Benchmark

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

SegregateBenchm ark

Period for 1992 is: August-Dec 1992Source: Wyatt Survey, Schroders & Bloomberg

Recent Performance - JCI

Source: Bloomberg

2,000

2,200

2,400

2,600

2,800

3,00028

-Dec

-07

12-J

an-0

8

27-J

an-0

8

11-F

eb-0

8

26-F

eb-0

8

12-M

ar-0

8

27-M

ar-0

8

11-A

pr-0

8

26-A

pr-0

8

11-M

ay-0

8

26-M

ay-0

8

JCI

2830

2294

2756

2180

-18.90%+20.10%

-20.90%

+15.18%

2362

2,745

2362

2510

JCI – How high can it go?

As of 30 May 2008Source : Bloomberg

Important Notes

This presentation is published for information only and does not have any regard to the specific investment objective, financial situation and the particular needs of any specific person who may receive this document. Investors may wish to seek advice from a financial advisor before purchasing units of the Fund. In the event that the investor chooses not to seek advice from a financial advisor, he should consider whether the Fund in question is suitable for him.

The information in this presentation is based on management forecasts and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us by or on behalf of the potential investor or which was otherwise reviewed by us.

Past performance and any forecast are not necessarily indicative of the future or likely performance of any Schroder Funds. The value of units and the income from them may fall as well as rise. Investors should read the prospectus, obtainable from Schroders, before investing.

Schroder Investment Management (Singapore) Limited65 Chulia Street #46-00 OCBC CentreTelephone: 1800 534 4288 Fax: 6536 6626