Ryan ALM Product Line (Solutions)
Problem: Most institutions have liability driven objectives (i.e. Pensions, OPEB, Insurance Products, Lotteries, NDA, etc.). Just like snowflakes, these liabilities are unique to each institution such that no two liabilities cash flow schedules are alike. However, most institutional assets are managed vs. generic market indexes. This disconnect has lead to assets being managed and monitored vs. the wrong objective. As a result, assets have performed in a way inconsistent with the liability objective leading to volatile Funded Ratios.
Solution: The Ryan ALM product line is designed to be the Solution to liability driven objectives. The Ryan ALM proprietary design is that of a turnkey system of products that are customized to each client’s unique liability cash flow schedule:
Custom Liability Index (CLI) = The CLI is designed to be the proper benchmark for liability driven objectives. The CLI calculates the present value (market value) of the liability projected cash flow schedule as well as the true economic growth rate of liabilities. Moreover, the CLI calculates the interest rate sensitivity of this liability cash flow schedule. Such an index is the best representation of the client objective and should be the proper benchmark for assets. Ryan ALM delivers the CLI via a private password protected web site.
Asset Allocation Model = Once the CLI is installed the true economic Funded Ratio can then be calculated and monitored. Based on the level of this Funded Ratio, the projected return on assets (ROA) and the time horizon allowed to cure any deficit, Ryan ALM calculates the asset allocation to the Alpha assets with the reciprocal allocated to the Liability Beta assets.
Performance Attribution Report (PAR) = Once the CLI is installed any and all assets can then be compared to liabilities to ascertain the relative risk/reward behavior of assets vs. liabilities. Such a report includes eight risk measurents, four reward measurements and two risk-adjusted measurements.
Liability Beta Portfolio = Once the CLI is installed, Ryan ALM can manage assets as a Liability Index Fund or Beta portfolio that matches any or all of the liabilities as measured by the CLI. Such a portfolio should be the Core portfolio of a client. The Beta portfolio should be the lowest cost, lowest risk portfolio since it matches liabilities and eliminates interest rate risk and contribution volatility.
Portable Alpha Liability System (PALS) = The objective is to eliminate any deficit through an actively managed Alpha portfolio. As the Alpha portfolio exceeds the growth rate of liabilities (as measured by the CLI), such excess returns are transferred to the Beta portfolio to secure this victory.
Portable Alpha Absolute Return System (PALS) = Same structure as PALS but with an absolute return rather than a relative return objective.