Ermitage has announced an agreement with the California Public Employees' Retirement System (CalPERS), to license its advanced portfolio management solution - Optics.
The deal follows a successful trial phase completed in Q1 2010, when CalPERS applied OPTICS to its Risk Managed Absolute Return Strategies Program (RMARS) and Global Equity Program. Ermitage has managed a bespoke European Multi-Strategy Portfolio for CalPERS since 2006, but this is the first time it has made its proprietary systems available on a stand-alone licensed basis.
OPTICS has been developed over four years, beginning in 2006. It is Ermitage's proprietary system for constructing portfolios to client-specified risk-return objectives. OPTICS allows the user to create customised investment portfolios designed to meet specific requirements with respect to risk, return and other constraints and preferences, across different investment 'regimes'. It also provides investors with a framework to assist in the dynamic integration of alternatives into the total asset allocation process.
Using highly intuitive modelling and applied econometrics, OPTICS is built around a forward-looking and pragmatic "real world" approach to portfolio and risk management. It integrates comprehensive investment research and data analysis in several forms, making it possible for the user to design portfolios that have a high probability of meeting their specified objectives across a range of market environments.
At its heart, OPTICS features a series of advanced construction algorithms that incorporate forward-looking macro, strategy and underlying manager forecasts across multiple investment scenarios. The system translates this information into risk-adjusted portfolios specifically designed to achieve stated objectives, and ensures that selected investments and funds are complementary at a portfolio level over a variety of plausible and realistic market conditions. One of its key features is that it provides a clear and fully transparent decision-making framework that guarantees consistency between investment beliefs, objectives and portfolio management. Each stage of the process creates a clear audit trail that shows exactly how the portfolio has been put together.
Commenting on the news, Ian Cadby, Ermitage Group CEO said: "We are delighted that CalPERS has chosen to be our first external partner for our OPTICS system. Whilst first conceived to manage our own multi-manager portfolios in accordance with our long held philosophy that traditional investment models were ultimately ineffective in regime change market conditions, interest from institutional investors seeking an effective 'real world' portfolio management solution led to Ermitage accelerating its external partner program. The problem for many institutions is that they struggle to combine the often disparate views of their various advisors, consultants and product providers into one overall portfolio view that takes into account more than just the current environment. Our vision is to partner with a select group of global institutions who can use OPTICS to combine traditional long only assets with alternative hedge fund product in order to create a more integrated, holistic view of portfolio construction and risk management. We believe that making proprietary solutions such as OPTICS available to external users together with our portfolio construction methodology will herald the expansion of a new solution-orientated service industry, where clients are able to take greater control of their investments."
Nick Macleod, MD - Investment Solutions, and creator of the OPTICS system added: "Investors with liabilities to fund need to establish control over their funding programs. OPTICS helps in that it recognises that changes in market conditions are not mere fluctuations; they are genuine shifts in the environment whose tendency to persist once they become established can disrupt convergence towards long-term average returns and lead to serious funding issues."