Managing Large Portfolios
in the Current
Market Environment
Asian Regional Forum on Investment
Management of Foreign Exchange
Reserves
Giri Koorniaharta P.
Reserve Management Department
BANK INDONESIA
Sapporo, September 25th 2024
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OUTLINE
1. CHANGES IN MARKET STRATEGIC ENVIRONMENTS 3
2. MANAGING PORTFOLIOS
- CURRENT CONDITION 5
- MOVING FORWARD
3. CONCLUSION 8
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1. CHANGES IN MARKET STRATEGIC ENVIRONMENTS
HISTORY REPEATS ITSELF....?
Paul Volcker, 1982 Jerome Powell, 2024
In 1982, the Fed lowered interest rates after seeing rising unemployment and falling inflation. While the economic situation is slightly different now, the overall
pattern similarly indicates a slowing economy. The September rate cut by the Fed was a direct result of the prevailing economic conditions.
FFR (%) Unemployment (up) crossed FFR (%)
CPI YoY (%) above inflation (down)? CPI YoY (%)
Unemployment Rate (%) Economy's slowing -> Central Unemployment Rate (%)
bank lowered interest rate.
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1. CHANGES IN MARKET STRATEGIC ENVIRONMENTS (cont’d)
SEACHANGE (SHIFT IN PARADIGM)
Post Covid-19 stubborn inflation and fiscal fear has pushed global central banks to keep on rising interest rate and causing
bonds yield raised to the highest level since 2007. A longer horizon view might give different perspective…
7.00%
6.00%
5.00%
March 2020 Oct 2023
4.00%
WHO declare Feb 2022 Israel-Gaza
3.00%
Covid-19 Russia-Ukraine war
2.00% Pandemic declare war
1.00%
0.00%
EM Inflation DM Inflation EM Reference Rate DM Reference Rate
US 10-Year Treasury Yield (%)
15.51%
THE
LONGEST
BOND BULL
MARKET
SEA CHANGE?
3.73%
BETA AVALANCHE
0.65%
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2. MANAGING PORTFOLIOS
- CURRENT CONDITION: ASSURING RESERVES ADEQUACY
In the environment, where interest rates were rising, and fixed income assets were under pressure, central banks might
need to reassess their liquidity management strategies and portfolio strategy approach.
Low Yield High for Longer
2020-2022 2022-2023
Principles of
Reserve
Management
Leaning towards risk-adjusted SAFETY Focus on preserving value to assure
return Capital Preservation reserve adequacy Resilient
Striking by being
Optimal Holding sufficient liquid assets LIQUIDITY Robust Liquidity Increasing the allocation
to more liquid assets &
to meet short-term obligations Provision of Liquidity Framework liquidity facility Defensive
Balance & Agile
Focus on asset class RETURN Minimizing downside risk by re-
FFR
diversification Income Generation allocating exposures
UST
2yr
Liquidity tranche to serve short-term needs ALM through synergizing liquidity & investment tranches
Benchmark-driven -> excess return No market benchmark -> absolute return
Passive portfolio management Active portfolio management
Risk-adjusted return optimization Downside risk protection optimization
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2. MANAGING PORTFOLIOS (cont’d)
- MOVING FORWARD: EMBRACING FUTURE CHALLENGES
To navigate future challenges, portfolio management must embrace future-proof strategies that anticipate and adapt to
evolving conditions.
Maintain ALM Synergy
Liquidity Liquidity management model to Maintain Robust
Management mitigate risks and optimize cash Liquidity Framework Liquidity Investment
Maintain Diversification Maintain ALM
Downside risks
Mitigation in place to minimize risks (natural
mitigation Asset Class Currency Instrument hedge)
Active Actively seizing market Fixed
Repo Currency
Management opportunities to achieve gains Income
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2. MANAGING PORTFOLIOS (cont’d)
- MOVING FORWARD: EMBRACING FUTURE CHALLENGES
By proactively upgrading skills and adopting cutting-edge technologies, active managers can enhance their ability to
identify and capitalize on emerging opportunities, while mitigating risks.
Asset managers External expertise >>> Internal External
diversification expand investment horizons and Manager Manager
identify new alpha opportunities
Analysts
Portfolio skills Enhance human capital resources Portfolio
upgrade skills Managers Spread Macroeconomy &
Product Technical Analysis
Advanced
Increase accuracy in projection Market
technologies Liquidity Return
Indicator
utilization
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3. CONCLUSION
Over the past decade, financial markets have grappled with increasing volatility and uncertainty,
posing unexpected challenges for managing large-scale portfolios like reserves. These dynamics have
significantly impacted the value of global assets, requiring more agile and resilient strategies to
preserving capital.
Reserve managers must evolve with agility, embracing a resilient, forward-looking framework to
preserve value while navigating future challenges.
A key priority is maintaining a flexible and adaptive strategy that allows for proactive
management of downside risks while capitalizing on potential gains.
Incorporating advanced technologies ensures enhanced decision-making and responsiveness to
market shifts.
Grounded in three basic principles secures long-term portfolio value while remaining open to
innovations that strengthen reserves management in an increasingly complex financial
environment.
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Thank You
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