StatPro implements SRRI
(Synthetic Risk and Reward Indicators)
On July 1, 2010 the European Commission introduced a new
programme of legislative changes with respect to the investment
funds known as UCITS: these legislative changes are popularly known
as UCITS IV. A focus of this Regulation concerns the fund
disclosure documentation to be issued to investors in UCITS.
The Key Investor Information Document
(KID)
The new Regulation introduces the Key Investor
Information Document (KID), a pre-sales document intended to give
potential retail investors an overview of the key features of the
UCITS, and to make it easy to compare different products. The
driving force behind the concept of a KID is to cut away the
complexity of fund industry terminology from documentation
presented to retail clients and replace it with easy to understand
language. One of the most significant aspects of this new approach
is the way investors will be informed as to the risk and reward
profile of the investment.
The Synthetic Risk and Reward
Indicator (SRRI)
A SRRI is in essence a number between 1 and 7
which will allow investors assess the risk of a potential
investment in a UCITS. A numeric value of 1 means a low risk/low
reward investment while a 7 on the scale indicates the investment
carries a high level of risk but an equally high level of potential
return.
The simplicity of the numeric scale belies a
complex set of calculations. The calculation of the SRRI will be
based on the volatility of a UCITS past performance.
CESR has published guidelines to accompany the
introduction of the Regulation. These guidelines set out the
algorithms to be used in the calculation of the volatility of the
UCITS and the appropriate risk class applicable to that level of
volatility. The guidelines include different algorithmic formulae
for the calculation of SRRI for market funds, life cycle funds,
absolute return funds, total return funds and structured funds.
The StatPro Solution
In its continued effort to help Institutional
Investors across Europe comply with UCITS regulation, StatPro has
developed a proprietary tool for the calculation of the SRRI.
As different types of funds require different
type of calculation, in order to produce the SRRI measure, StatPro
will provide the proper calculation approach for each fund type.
Thanks to StatPro analytics and data services, inputs required from
clients will be reduced to a minimum. Moreover, the system has been
built to compute the SRRI on thousands of portfolios. Results can
be exported for storage in a data warehouse, activity logs are
produced and detailed reports can be easily created in order to
respond to presentation and redistribution needs.
For more information on StatPro SRRI, please
contact your StatPro representative.
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