State Street Associates

State Street Associates, LLC (SSA) is a unique partnership of industry and academia dedicated to delivering preeminent research in global asset allocation and risk management to investment managers and institutions. SSA, using the unique information resources of State Street, has developed new analytical technologies that illuminate portfolio risk and improve the performance of asset owners and managers around the world.

SSA serves as a research and development laboratory for analytical tools and proprietary indicators used by State Street Global Markets strategists who combine them with valuation and business cycle analyses to create portfolio strategies over multiple time and risk horizons. Below is a summary of their major products and services.

Portfolio Optimization
State Street Associates has developed portfolio optimization technology that simultaneously addresses both absolute and relative performance. Instead of producing an efficient frontier in two dimensions, multi-risk optimization produces an “efficient surface” in three dimensions: expected return, standard deviation and tracking error.

SSA’s Portfolio Reallocation Analysis (PRA) services help asset owners and managers to understand absolute and relative returns and manage the risk of losses related to reallocations throughout the investment horizon — for both normal and turbulent regimes — and convert these optimal reallocations into risk budgets. These analyses clearly demonstrate the impact of each position on portfolio value at risk.

As part of its portfolio optimization research, SSA has developed a Global Asset Allocator (GAA) tool, designed to help portfolio managers build an optimal allocation, tailored specifically to their investment requirements, based on the indices of the MSCI universe. The GAA allows the use of multi-risk optimization to simultaneously address both absolute and relative returns, as well as regime-dependent risk estimation to identify portfolios that are more resilient to market turbulence.

Risk Analysis
State Street Associates has developed proprietary technologies that measure standard deviation and correlation while distinguishing between returns arising from significant events and those arising merely from market “noise”. SSA has also introduced a methodology that blends risk parameters estimated from quiet observations with those from stress-related periods. These innovations facilitate the structuring of portfolios that are resilient to turbulent periods in the market, while offering a reasonable likelihood of achieving long-term goals.

SSA has also introduced two new risk measures: within-horizon probability of loss and continuous value at risk that measure exposure to loss throughout the investment horizon. In contrast to traditional techniques that estimate loss probability only at the end of the investment horizon, these new risk measures reveal that within-horizon exposure to loss is substantially greater than investors normally assume.

State Street Associations Risk Budget Tool (RBT) enables investors to convert optimal portfolio allocations into Value at Risk assignments. The RBT calculates Value at Risk for each portfolio position, preserving the portfolio’s economic exposures and enabling this exposure with greater latitude. It also calculates continuous value at risk.

SSA’s Simulated Risk Analysis (SRA) service simulates millions of realistic portfolio allocations given clients’ specific investment processes. Using an empirical sample of historical returns, SSA develops a distribution that identifies within horizon and end of horizon loss probabilities.

Portfolio Flow Research
Using the unique information resources derived from State Street’s position at the crossroads of international capital flows representing about 15 percent of the world’s tradeable assets -- State Street Associates has developed multi-asset class research on the investment holdings, flows and borrowings of institutional investors around the world. This research reveals what global investors are doing and why, together with the impact of these activities on currency and equity pricing around the world.

The Equity Flow Indicator (EFI) represents a dramatic innovation in investors’ ability to analyze the demand and supply factors underlying equity price movements. This indicator covers a number of dimensions, including geography, industry and style, revealing the importance that these factors play in causing whole groups of securities to deviate from fair value.

The Portfolio Borrowing Indicator^SM (PBI) is the financial industry’s leading source of information on equity and fixed income borrowing, including concentration and volumes. The PBI provides daily geographical and sectoral information on the overhang of borrowings, their concentration and their volume

The Portfolio Flow Indicator (PFI) demonstrates the demand for equities in markets around the world by modeling and animating global equity flows in near-real-time frequency. The PFI information sets allow for unprecedented coverage of daily international portfolio flows, delivered upon notification of settlement.

The Foreign Exchange Flow Indicator (FXFI) measures cross-border currency flows, illuminating investor demand for and supply of 11 developed and 15 emerging market currencies, distinguishing between spot and forward (hedge) transactions. The FXFI, an optimal weighted average of past normalized flows and currency returns, provides statistically significant signals regarding both future flows and currency returns.

State Street’s Investor Confidence Index^SM monitors the common buying patterns of higher-risk investment by thousands of institutional investors around the world, creating an unbiased quantitative measure of professional investor sentiment.