Challenge
Prior to Venn, this client had had a variety of consulting, risk management and spreadsheet tools at their disposal. However, these tools were not user friendly, made it difficult to import and export data, and often lacked guidance on the highest value use case. Additionally, they needed a solution to help analyze risk and performance intra-month to help support key business decisions, and also addressed the data lag for private market investment risk assessment.
Solution:
For this client, Venn is able to provide an intuitive user interface where data populating and accessing market data is made easier, and the use cases for Venn’s features are very clear. Venn is being used as a tool to help facilitate various conversations and support investment decisions. For example:
Manager Evaluation
"When we are underwriting a hedge fund or a diversified manager, we want to analyze that manager’s return stream to see if the fundamental work we have done on our thesis has played out quantitatively. In particular, we are not only interested in the Sharpe ratio of the manager’s returns, but how the manager interacts with the rest of our diversified portfolio by evaluating its correlation to other managers and beta to markets. We want to add unique managers doing different fundamental jobs, and Venn is helpful for easily assessing each manager’s correlations, market beta, and the residual risk and return. Furthermore, Venn helps us identify if certain managers are loosely correlated to each other than expected, and understand why that might be by easily comparing them in different regimes."
Portfolio Construction
"We periodically evaluate our portfolio across various objectives and ask questions such as:We can utilize Venn to see which managers should be emphasized based on our views of different market regimes. If Venn’s output does not favor a manager that we fundamentally like, it is also helpful to understand why that may be. Venn helps enable interesting conversations about the diversifier portfolio and which managers to emphasize given the purpose of the asset class and market views."
- Are certain managers an anchor to the portfolio - is that good or bad?
- Are we in a certain financial regime that presents a good opportunity for one strategy over another?
- In what regime might we want to be in strategies or managers we currently do not favor?
Easy Comparisons
"Venn is a tool that is helpful in making a decision on a handful of competing ideas or just testing ideas side by side to see how they differ across the gamut of factors and market stress analysis. Sometimes it is nice for the human brain to simply view various metrics side by side, and Venn allows for that."
What’s Next
Looking ahead, this firm is starting to explore the concept of a Center Book, which will comprise their best investment ideas across various asset classes. The goal is to better understand the impact of potential allocation and exposure changes.
“Venn has been useful in analyzing the various return streams of possible upsized positions to see how accretive they might be to the portfolio’s overall risk and return. Venn also enables the team to simulate how the portfolio may be impacted if certain exposures/ allocations are changed at various levels, from single stock exposures to strategies. This will be a concept that has a rigorous risk framework around it, and Venn will be useful to construct these portfolios and help manage risk.”
The firm would like to further enhance their analysis of private market returns by leveraging analytics offered in Venn’s Private Asset Lab, such as Desmoothing, Interpolation, and Extrapolation.
“We keep trying to use other tools but I keep coming back to Venn.”
Disclaimer: The Venn subscriber featured in this article was not compensated for their statements. As a Venn subscriber, their use of portfolio analytics or other Venn features and their experience could differ from your organization’s due to their particular use of Venn, the version of Venn used, or other factors. Not all subscribers will be equally satisfied. The person providing this testimonial was selected based on a variety of factors, some of which are subjective. This document is for informational purposes only. Not an offer to buy or sell securities. Exposure to risk factors is not a guarantee of increased performance or decreased risk. Click here for Important Disclosure and Disclaimer Information.
The information contained in this article is provided for general informational and educational purposes only, and should not be construed as investment advice. The contributor to this material is associated with a client of Two Sigma Investor Solutions, LP (“TSIS”). Neither TSIS nor its affiliates have compensated the contributor for his statements. The statements from the interview have been edited and reformatted by TSIS with the contributor’s approval. Unless otherwise noted, the contributor’s statements do not represent the actual views or opinions of TSIS or its affiliates, or any officers, directors, or employees thereof.
This article is not an endorsement by Two Sigma Investor Solutions, LP or any of its affiliates (collectively, “Two Sigma”) of the topics discussed. The views expressed above reflect those of the authors and are not necessarily the views of Two Sigma. This article (i) is only for informational and educational purposes, (ii) is not intended to provide, and should not be relied upon, for investment, accounting, legal or tax advice, and (iii) is not a recommendation as to any portfolio, allocation, strategy or investment. This article is not an offer to sell or the solicitation of an offer to buy any securities or other instruments. This article is current as of the date of issuance (or any earlier date as referenced herein) and is subject to change without notice. The analytics or other services available on Venn change frequently and the content of this article should be expected to become outdated and less accurate over time. Any statements regarding planned or future development efforts for our existing or new products or services are not intended to be a promise or guarantee of future availability of products, services, or features. Such statements merely reflect our current plans. They are not intended to indicate when or how particular features will be offered or at what price. These planned or future development efforts may change without notice. Two Sigma has no obligation to update the article nor does Two Sigma make any express or implied warranties or representations as to its completeness or accuracy. This material uses some trademarks owned by entities other than Two Sigma purely for identification and comment as fair nominative use. That use does not imply any association with or endorsement of the other company by Two Sigma, or vice versa. See the end of the document for other important disclaimers and disclosures. Click here for other important disclaimers and disclosures.
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