David Harvey explains TMPI Service

Dear Member

Trustee Managed Portfolio Indices – A STEP Member Service

I am writing to inform you of a new free service available to members, the Trustee Managed Portfolio Indices (TMPI).  This service is being launched to support STEP members and private client practitioners as they work to understand the levels of risk and return being employed by investment managers when advising trustees and practitioners on their client investment strategies and needs.

During a period of research with members and representatives of private banks and discretionary investment managers, it was evident that there was some confusion as to the terms the investment management industry used to describe the level of risk exhibited by their investment solutions.  This has also been highlighted as an issue by the FSA and is not news to many practitioners.

As a solution this free STEP Member Service is designed to assist both the practitioner and the investment professionals in agreeing levels of investment risk by setting appropriate aims based on two key risk factors; Maximum Annual Drawdown and Volatility. 

Data Quality

As it is essential to understand the integrity of the data that makes up an index, important information will be made available to members on the type of performance data that has been submitted by the investment managers. This will act as an indicator as to how the data submitted by investment managers to the Indices compares with actual client returns. 

Data submissions will be categorized as follows:

A = Actual client data for all clients and thus likely to be wholly reliable.

B = Sample client data which can generally be relied on to reflect actual client returns.

C = Model client data which cannot be relied on to represent actual client returns.

D = Manager did not confirm type of data.

Importantly for the STEP member and private client practitioner the service will not make any recommendations or promote any single investment manager or private bank or provider of investment services.  Independence will be a key to the service.

Risk and Performance Measurement

The Indices will be segregated into the following categories of Low, Medium and High risk and are to be represented in the following terms:

Low risk – risk averse or short-term investors with a 3 year or less investment horizon.  Exhibit a volatility of <6% with a maximum drawdown no greater than 10% over the investment period.

Medium risk – Where the Investment horizon is between 3 and 10 years.  Volatility of between 6-10% and drawdown no greater than 20% over the investment period.

High risk – 10 years plus investment horizon, volatility in excess of 10% with  potential draw downs greater than  20% which may result in larger losses over the investment period.

Manager Performance

Performance will be assessed and based on the average annual percentage return of all subscribing managers over a 1, 3 and 5 years annual rolling timeframe in each of the 3 categories. Should a member require historic information, the Indices are based at 31^st December, 2002 and data can be provided from this date.

Benefits to the Members

• Free
• Independent
• Large range of data
• Levels of data supplied will be ranked for reliability
• Provides simple process for setting investment objectives
• Ability to challenge managers on risk and performance levels
• Designed to focus on risk adjusted returns
• Peer Group Advisory Board appointed
• Information available on http://www.step.org/  and http://www.trusteempi.com/ website
• Ability to use the service to protect clients and practitioners
• The ability to understand what is acceptable in terms of investment performance
• Increased transparency of information from the wider Investment community

Access to the Manager information

Data and information will be free to STEP Members through the Website http://www.step.org/ or the http://www.trusteempi.com/ websites.  Information will also be distributed regularly by the STEP Journal and update emails.

General Enquiries

Should you have any other questions please feel free to contact Russell Bussey or Jim Walkinshaw of STEP.

STEP Partners

STEP is working with Enhance who produce the Indices.  Enhance already provide manager performance data for the Annual STEP Private Client Awards.

STEP is also working with Russell Bussey .  He is a long serving STEP Awards Judge and Chairs the International Panel for the awards.  He is a private client practitioner with over 30 years experience.  Russell will report to STEP on the project to STEP’s Executive Management Group and Board.  He will also undertake a series of presentations to STEP branches throughout the UK and the Channel Islands to explain the service, its origins and aims.

Conclusion

STEP believes that the provision of these indices will give both our members and appointed investment managers a significantly stronger tool kit for setting and agreeing appropriate levels of risk when agreeing investment strategy.

Managers will also have access to their own Manager Reports as well as a Peer Group Report to help them describe how their own process compares with the industry and demonstrate the suitability of their investment solution to our members requirements. It is envisaged that by improving communication and transparency the Trustee Managed Portfolio Indices will serve to protect our clients, ourselves and the investment profession. 

I hope that you will find this a valuable STEP Member Benefit and will support its launch.

Yours sincerely

David Harvey