1.session - Christopher Hamilton - Invesco

Portfolio Construction and Risk Management
Across the Public and Private Asset Spectrum

6th Annual Quantitative Investment Conference
Invesco Investment Solutions

October 19, 2022
Christopher Hamilton, CFA, CAIA

Confidential: This document is intended to be used only by the eligible persons to
Head of Client Solutions, Asia Pacific whom Invesco has directly provided. This document is for informational purposes
only and is not an offering of a financial product. It is not intended for and should
not be distributed to, or relied upon, by members of the public or retail investors.
Circulation, disclosure, or dissemination of all or any part of this document to any
unauthorized person is prohibited.
Confidential: The presentation is solely for the attendees of the 2022 S&P Korea Quantitative Investment Conference on 19 October 2022.
Not for further distribution.
Executive summary
Discussion objective
To discuss techniques for effective integration of public and private market assets
Key topics
Examine current environment and investment opportunity set
Understanding unique private market return drivers and outlook (i.e., long-term CMAs)
Explain how risk modeling and factor-based analytics can allow for efficient portfolio construction
Confidential: The presentation is solely for the attendees of the 2022 S&P Korea Quantitative Investment Conference on 19 October 2022. 2
Agenda
1 Navigating the current environment and examining investment opportunity set
2 Applying forward-looking assumptions to private markets and assessing overall outlook
“Putting it all together” – leveraging factor-based analytics to integrate public and private assets
3
Navigating the current environment and
examining investment opportunity set
4
Navigating markets
Tepid return forecasts and increased volatility create challenges for traditional assets
10-year asset class return and risk assumptions (USD):

Return
14%
US Large Cap Return(%) Risk (%)

12%
Historical 60/40 8.5 9.6
10% Expected 60/40 6.0 10.1

Global Equity EM Equity
Moderate Portfolio Global Equity
8%
EAFE Equity
US Large Cap
6% Moderate Portfolio EAFE Equity
4% Global Agg
US Agg EM Equity
2%
US Agg
Global Agg
0%
0% 5% 10% 15% 20% 25% 30%
Risk
Source: Invesco as of June 30, 2022. Past performance is not a guarantee of future results. There can be no assurance that any estimated returns or projections can be realized, that
forward-looking statements will materialize or that actual returns or results will not be materially lower than those presented. Data is unhedged USD. An investment cannot be made into an
index. Please note these are geometric returns. Refer to Capital market assumptions (CMAs) slide for additional CMA information. The 60/40 Portfolio is a blend of 60% S&P 500 Index and
40% Bloomberg Barclays US Aggregate Index.
Navigating markets
Portfolios will need to further incorporate alternatives to meet return targets/liabilities
Meeting return objectives may be more difficult over the coming market cycle
10-year return expectations
16% Return (%) Risk (%)
14% MSCI World Index 7.6 16.5

BBG BARC Global 3.6 5.2
12%
Aggregate Bond Index
10%
8%
6%
4%
2%
0%
PE US LBO Early venture Mid-market Distressed RE - RE - Infra - US Large cap Developed ex EM Treasury US IG US High yield
lending credit Core Value Add Core US Equity
Private equity Private debt Real Assets Equity Fixed Income
Past performance is not a guarantee of future results. There can be no assurance that any estimated returns or projections can be realized, that forward-looking statements will materialize
or that actual returns or results will not be materially lower than those presented. Source: Invesco, current return data as of June 30, 2022. Data is unhedged USD. An investment cannot be
made into an index. Refer to Proxy information slide for additional information. Capital market assumptions are forward looking, are not guarantees, and they involve risks, uncertainties, and
assumptions. Refer to Capital market assumptions (CMAs) slide for additional CMA information. Asset class proxies for risk and return include MSCI World Index (Global Equity), BBG
BARC Global Aggregate Bond Index (Fixed Income). For illustrative purposes only.
Historically, private market strategies enabled diversification benefits
with lower correlations to traditional asset classes
Venture Growth Natural

Buyout Infrastructure Private debt Real estate ACWI Global agg
capital Capital resources
Venture capital 1.00
Buyout 0.69 1.00
Growth capital 0.81 0.83 1.00
Infrastructure 0.50 0.85 0.69 1.00
Private debt 0.53 0.89 0.72 0.78 1.00
Real estate 0.50 0.70 0.56 0.74 0.66 1.00
Natural resources 0.34 0.70 0.55 0.64 0.77 0.57 1.00
ACWI 0.60 0.89 0.81 0.72 0.85 0.51 0.65 1.00
Global agg 0.00 0.19 0.00 0.34 0.05 -0.01 0.00 0.16 1.00
Source: Burgiss. Data utilizes quarterly return time series from January 2010 - September 2020. All private asset class returns are from Burgiss, and the asset classes shown are defined by the
Burgiss Universe. The MSCI ACWI and Global Agg are traditional public indices. Past performance is not indicative of future results. An investment cannot be made directly into an index.
Private markets have grown in scale and complexity
While rife with opportunity, they are increasingly difficult to navigate
AUM growth in private markets (1980-4Q21)

9.0 Total AUM (4Q21):
1983 8.0 $8.5T
7.0 Total AUM (1980):

$640M
6.0
CAGR ~ 26%
$USD (trln)
5.0
4Q21
4.0
3.0
2.0
1.0
0.0
Buyout Expansion Capital VC Early Stage VC Late Stage Other PE Senior Debt
Mezzanine Debt Distressed Debt Other Private Debt Real Estate Generalist Real Estate Value-Added Real Estate Opportunistic
Natural Resources Oil & Gas Natural Resources Timber Infrastructure Other Private Real Assets Other Private Assets
Source: Burgiss, Preqin for both charts. Left chart: data from Jan. 1, 1983 – December 31, 2021. Right chart: data from Jan. 1, 1980 – December 31, 2021.
Private markets investing
Diversification doesn’t end at the asset class level
Sample portfolio
Private equity Private credit

Large buyout Senior direct lending
Private
Mid-market buyout equity Middle market lending
Late venture Distressed debt
Early venture Alternative credit
Impact investing Special situations
Private
Private fund seeding credit Real estate debt: Senior
Growth/expansion capital Direct real estate Real estate debt: Mezz
and infra
Structured credit: CLOs
Direct real estate and infrastructure
Infrastructure debt (HY)
Real estate: Opportunistic
Venture lending
Real estate: Value-add
Aircraft leasing
Real estate: Core
Insurance-linked securities
Infrastructure: Value-add
Infrastructure: Core
Sample allocations provided for illustrative purposes only.
Looking beyond property in alternative assets
Assessing other alternative investment opportunities
The introduction of different alternative assets can improve performance and
mitigate concentration risk in property How can expanded asset class view
14.00
improve your efficient frontier?
12.00 US LBO
When practically implemented, real
10.00
US Core RE
estate certainly is additive to a
Mezz Private Credit MSCI EM
traditional portfolio.
8.00
Return (%)
Senior Private Credit MSCI World

US Large
Alt Credit
6.00
Other alternatives such as private
US HY credit and private equity can also
4.00
US IG significantly improve a portfolios return
China Policy Bank & TSY
China RMB Credit
potential and provide diversification.
2.00
0.00
0.00 5.00 10.00 15.00 20.00 25.00 30.00
Absolute Risk (%)
Traditional assets Gloabl Real Estate Other alts alternatives
For illustrative purposes only.

Asset class focus: Market opportunity in private credit
Private credit offers diverse risk-return profiles
1800 Liquidity-constrained borrowers High risk – return opportunities
Low duration deals Complex, specialized underwriting
1600 RE Opportunistic / Rescue Financing

Alt Credit Opportunistic / Small Cap Pre-Settlement Legal
1400 Corporate Stressed / Distressed

Corporate Opportunistic / Small Cap
Venture Debt
1200 Infrastructure Bridge Loans Corporate Complex Situations Fund Finance (Pref Equity)
Healthcare / Music Royalties
RE Commercial Bridge Loans
1000
Spread
Alt Credit Large Cap Performing Diversified
Post-Settlement Legal
2L / Mezzanine Direct Lending
800
Fund Finance (A rated)

Trade Finance (unrated, commodity) 1L Direct Lending
600 Infrastructure Mezannine / Mid Cap
RE Performing Core+ Mezz notes
400 Infrastructure Diversified HY Credit / Large Cap

Trade Finance (BB rated, corporate)
200
Fund Finance (debt collateralized)
Low risk, long duration opportunities

0
0 1 2 3 4 5 6 7
Tenor

Alternative Credit Corporate Credit Real Estate Debt Infrastructure Debt
Key client objectives
Partnering with well-resourced experts can help with challenges
Client challenge Supporting capability
Navigating markets Providing return and risk forecasting ✓

Customized • Cutting edge financial technology tools/analytics
asset allocation • Asset/liability matching/liquidity management/SCR
✓
Access to high quality
investments
Sourcing, due diligence, capacity ✓
• Diversification
Implementation
• Custom and/or commingled
✓
Flexible delivery Deeper relationships, aligned economics ✓

Monitoring, oversight
and reporting
Investment and operational oversight and integrated reporting ✓
Applying forward-looking assumptions to private markets
13
Capital market assumptions
Providing long-term estimates for the behaviour of different asset classes
170+ assets Nearly 20 global currencies Public and private1 markets
Equities North America Public markets
– 45+ assets United States (USD), Canada (CAD) Equities, fixed income and
listed alternatives
– Historical data back to early 1970s Europe
Private markets
Fixed income UK (GBP), Eurozone (EUR), Switzerland (CHF),
Norway (NOK), Sweden (SEK), Denmark (DKK), – Private equity
– 80+ assets
Poland (PLN) – Private credit
– Historical data back to early 2000s
Asia-Pacific – Real assets
Alternatives
Japan (JPY), Taiwan (TWD), Thailand (THB), South
– 30+ assets Korea (KRW), China (CNY and HKD), Australia
– Return & Risk coverage for both listed and unlisted (AUD), India (INR)2, Singapore (SGD)
assets including private credit, private equity and real Other
assets
South Africa (ZAR)
Target Risk
Conservative, Moderate, Aggressive
1 Due to private market assets requiring longer investment horizons, only 10-year assumptions are developed.
Source: Invesco as of June 30, 2022. Past performance is not a guarantee of future results. There can be no assurance that any estimated returns or projections can be realised, that forward-
looking statements will materialise or that actual returns or results will not be materially lower than those presented. An investment cannot be made into an index. Please note these are
geometric returns. Refer to Capital market assumptions (CMAs) slide for additional CMA information.
Building block approach
Our building block approach to estimating returns
Income Capital gain Loss
Equity Fixed income Direct real estate

Expected
returns
Total yield Total yield Income
+ Valuation change + Valuation change + Valuation change
+ Earnings growth + Roll return + Growth
– Credit loss
Real estate
Comparing the building blocks of Unlevered Private Direct Real Estate (DRE) to Levered DRE
Unlevered Levered
Expected
returns
Income Unlevered CMA Multiplier
X Leverage
+ Valuation change + Property improvements
+ Growth + Tax shield Tax benefit
– Cost of financing Negative detractors
– Fees
Dashboard: Real assets – attractive in our view
Real assets and their sub- Long-term historical return vs. CMA expected return
assets, real estate and
infrastructure, are both Public Private
15.1%
attractive using our 16%
14% 12.1%
framework. 12%
11.2%
Returns (%) 10.1%
• CMAs for core real 10%
7.3%
8.3% 8.0%
7.1%
8% 6.6% 6.8%
estate offer a slight 6% 4.6% 5.1%
premium to REITs and 4%

2%
is significantly above 0%
REITs Core RE Value-add RE Opportunistic RE Core infra. Infra. HY debt
their own history.
• As one moves further
Historical Return CMA Return
out into the risk
spectrum, within value
Asset Class Overall Valuations Fundamentals Regime
add or opportunistic,
Real assets Attractive Attractive Attractive Very attractive
the forward return
Real estate core Attractive Attractive Attractive Very attractive
profile beings to
Infrastructure core Attractive Attractive Attractive Very attractive
highlight an increasingly
attractive spread to
Very unattractive Unattractive Neutral Attractive Very attractive
history.
Source: Invesco Investment Solutions, Bloomberg L.P., Burgiss, Preqin. Historical return data is 20Y for all assets other than core infrastructure and infrastructure HY debt, which are 15Y, the
longest period available. For illustrative purposes only. Past performance is not a guarantee of future results. There can be no assurance that any estimated returns or projections can be
realized, that forward-looking statements will materialize or that actual returns or results will not be materially lower than those presented. Current return data as of Dec. 31, 2021. Data is
unhedged USD and private markets are gross of normative fees. An investment cannot be made into an index. Refer to proxy information slide for additional information. Capital market
assumptions are forward-looking, are not guarantees, and they involve risks, uncertainties, and assumptions.
Private equity
Comparing the building blocks of private assets to public assets
Public equity Private equity: LBO

Expected
returns
Yield Valuation change Multiplier
X Leverage
+ Valuation change + Earnings growth Improvements
+ Earnings growth + Improvements
– Cost of financing Negative detractor
Dashboard: Private equity – neutral in our view
Private equity (PE) Long-term historical return vs. CMA expected return
remains an asset to
consider as a growth Public Private
investor. 18% 15.3% 14.6%
16% 13.3%
• Our neutral conviction 14% 11.3%
12.5% 12.3%
Returns (%)
12% 10.3% 10.9%
9.7%
of PE is justified as 10%
8% 6.8% 6.7%
these assets still 5.7%
6%
command a significant 4%
2%
return premium to their 0%
US equity Global ex-US equity Large buyout Growth equity Early venture Late venture
public market
counterparts despite
Historical Return CMA Return
facing headwinds from
valuations.
• Investors seeking Asset Class Overall Valuations Fundamentals Regime
larger equity returns Private Equity Neutral Neutral Neutral Attractive
could potentially fund Large buyout Neutral Neutral Neutral Attractive
PE from challenged
public equity, notably
within the US.
Source: Invesco Investment Solutions, Bloomberg L.P., Burgiss, Preqin. For illustrative purposes only. Historical return data is 15Y for all assets. Past performance is not a guarantee of future
results. There can be no assurance that any estimated returns or projections can be realized, that forward-looking statements will materialize or that actual returns or results will not be
materially lower than those presented. Current return data as of December 31, 2021. Data is unhedged USD. An investment cannot be made into an index. Refer to Proxy information slide for
additional information. Capital market assumptions are forward-looking, are not guarantees, and they involve risks, uncertainties, and assumptions.
Private credit
Comparing building blocks of unlevered private debt to levered private debt
Income Loss
Unlevered Private Debt Levered Private Debt

Expected (1st & 2nd Lien)
returns
Multiplier
Total yield Unlevered yield
X
Adjusted Default Rate *
- Credit loss – Credit loss
(1 - Recovery Rate)
Leverage
Management Fees +
- Fees – Fees
Incentive Fee
– Cost of financing
Private credit: Dashboard – attractive in our view
Private credit appears Long-term historical return vs. CMA expected return
attractive across
markets, 1st and 2nd lien 12% Public Private 10.5%
9.7% 9.5%
Returns (%)
10%
private credit and 7.8% 8.0%
8% 6.8%
distressed debt, when 5.5%
6.1%
6% 4.8%
using our alternatives 3.9% 4.1%
4% 3.1%
framework. 1.5% 1.8%
2%
• Private credit CMAs are
0%
expected to be vastly US Treasuries US corp IG High yield Broadly synd. loans 1st lien Priv. Cred. 2nd lien Priv. Cred. Distressed debt
higher than their public
counterparts. Historical Return CMA Return
• Fundamentals and
Asset Class Overall Valuations Fundamentals Regime
regime, are signaling
“attractive,” while Private credit Attractive Neutral Attractive Attractive
1st lien private credit Attractive Neutral Attractive Attractive
valuations are presently
neutral. 2nd lien private credit Attractive Neutral Attractive Attractive
Source: Invesco Investment Solutions, Bloomberg L.P., Burgiss, Preqin. For illustrative purposes only. All historical return data covers a 20Y period, other than 1st lien private credit, which is
since inception of the CDLI-S index (Q1 2011). Past performance is not a guarantee of future results. There can be no assurance that any estimated returns or projections can be realized, that
forward-looking statements will materialize or that actual returns or results will not be materially lower than those presented. Current return data as of Dec. 31, 2021. Data is unhedged USD
and private markets are gross of normative fees. An investment cannot be made into an index. Refer to proxy information slide for additional information. Capital market assumptions are
forward-looking, are not guarantees, and they involve risks, uncertainties, and assumptions.
Leveraging factor-based analytics to integrate
public and private assets
22
Case study: Sample public and private portfolio
Summary
Objective
▪ Invest in global equities, fixed income, and alternatives across public and private assets
▪ Achieve total return around 8%, with yield level around 3%, at a risk level around 10% or less
Strategy characteristics
▪ Deliver an outcome-driven solution using a combination of strategic and tactical asset allocation views
▪ Provide diversification across asset classes, regions, currencies and styles/factors
▪ Leverage public and private markets exposure to maximize investment opportunity set
Case study: Sample public and private portfolio
High-level structure – three components
Sample Efficient Frontier Illustration
Public multi-asset portfolio 16.00

with SAA/TAA strategy Frontier with public+private assets
Public 14.00
ALTS - GRTH
Portfolio 12.00
10.00 VTWO
IEMG
Return (%)
ALTS - INCM
8.00 OMFL
Portfolio IEUR
PBUS
Multi-Alternative Income MSCI ACWI
6.00 Benchmark IPAC
(MAI) strategy to provide
Private Global Public MBB LQD
diversified private credit 4.00
Credit and Private GBL AGG

exposure 2.00
CLTL
PLW
Portfolio BAB
0.00
0.00 5.00 10.00 15.00 20.00 25.00 30.00
Absolute Risk (%)
Multi-Alternative Growth
(MAG) strategy to gain Private Exp. Return Exp. Risk Exp. Yield
exposure in private equity Equity Model portfolio 7.9% 8.9% 3-4%
markets and Real
Reference Benchmark* 6.0% 9.1% 2-3%
Estate
Source: Invesco, as of July 31 2022. For illustrative purpose only. *Reference benchmark is 50% MSCI ACWI and 50% Bloomberg Global Agg.
Case study: Sample public and private portfolio – asset allocation
Asset class allocation

Asset class Allocation Portfolio weights
US Large Cap Equity 17.4%

US Mid/Small Cap Equity 5.3% 6%
17.40% US Large Cap Equity
Developed ex.US Equity 6.8%
14% US Mid/Small Cap Equity
Emerging Markets Equity 5.6% Developed ex.US Equity
US Treasury 16.8% 5.30%
Emerging Markets Equity
US Investment Grade 11.0% 10%
6.80% US Treasury
MBS 7.3% US Investment Grade
5.60%
Private Equity 10% 7.30% MBS
Private Credit 14% PE

11.00% 16.80%
Private Real Estate 6% Private Credit
Private Real Estate
Source: Invesco, for illustrative purpose only.
Invesco Vision: Macro factor analysis
Viewing portfolio exposures through a common lens
Portfolio with 30% multi

alternative allocation
Benchmark
For illustrative purposes only
Drilling down at a granular level to examine sensitivities
Invesco Vision: Portfolio stress testing
Using factor exposures to test against hypothetical shocks

Benchmark
Invesco Vision: Portfolio stress testing
Using factor exposures to test against historical shocks

Benchmark
Summary
32
Summary
Integration of public and private assets relies on multi-faceted approach
• Analysis of asset class opportunities utilizing long-term CMAs

1 Broad investment opportunity set • Understanding fundamental return-drivers across public and private assets
• View public and private assets through common macro factor lens
2 Robust portfolio and risk analytics • Ensure appropriate risk treatment to allow adequate comparison of public
and private market opportunities
• Optimize portfolio to effectively balance return, risk, and diversification

3 Effective Implementation • Allow for unique client dimensions to customize approach (e.g. liquidity)

1.session - Christopher Hamilton - Invesco

Uploaded by

Copyright:

Available Formats

1.session - Christopher Hamilton - Invesco

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

1.session - Christopher Hamilton - Invesco

Uploaded by

Copyright:

Available Formats

Portfolio Construction and Risk Management

Across the Public and Private Asset Spectrum

Invesco Investment Solutions

Christopher Hamilton, CFA, CAIA

1 Navigating the current environment and examining investment opportunity set

2 Applying forward-looking assumptions to private markets and assessing overall outlook

10-year asset class return and risk assumptions (USD):

US Large Cap Return(%) Risk (%)

10% Expected 60/40 6.0 10.1

14% MSCI World Index 7.6 16.5

Private equity Private debt Real Assets Equity Fixed Income

Venture Growth Natural

Venture capital 1.00

Buyout 0.69 1.00

Growth capital 0.81 0.83 1.00

Infrastructure 0.50 0.85 0.69 1.00

Private debt 0.53 0.89 0.72 0.78 1.00

Real estate 0.50 0.70 0.56 0.74 0.66 1.00

Natural resources 0.34 0.70 0.55 0.64 0.77 0.57 1.00

ACWI 0.60 0.89 0.81 0.72 0.85 0.51 0.65 1.00

AUM growth in private markets (1980-4Q21)

7.0 Total AUM (1980):

Private equity Private credit

Sample allocations provided for illustrative purposes only.

Senior Private Credit MSCI World

Traditional assets Gloabl Real Estate Other alts alternatives

For illustrative purposes only.

1600 RE Opportunistic / Rescue Financing

1400 Corporate Stressed / Distressed

Alt Credit Large Cap Performing Diversified

Fund Finance (A rated)

RE Performing Core+ Mezz notes

400 Infrastructure Diversified HY Credit / Large Cap

Low risk, long duration opportunities

For illustrative purposes only.

Client challenge Supporting capability

Navigating markets Providing return and risk forecasting ✓

Flexible delivery Deeper relationships, aligned economics ✓

Our building block approach to estimating returns

Income Capital gain Loss

Equity Fixed income Direct real estate

+ Valuation change + Valuation change + Valuation change

+ Earnings growth + Roll return + Growth

For illustrative purposes only.

Income Capital gain Loss

+ Growth + Tax shield Tax benefit

– Cost of financing Negative detractors

For illustrative purposes only.

premium to REITs and 4%

Comparing the building blocks of private assets to public assets

Income Capital gain Loss

Public equity Private equity: LBO

+ Earnings growth + Improvements

– Cost of financing Negative detractor

For illustrative purposes only.

Comparing building blocks of unlevered private debt to levered private debt

Unlevered Private Debt Levered Private Debt

For illustrative purposes only.