Work with Custom Benchmarks

To change system settings that affect rescaling of ABALs and weights:

1. From any Eagle window, click the Eagle Navigator button to access the Eagle Navigator.

2. Enter System Parameters in the Start Search text box.

3. Click the System Parameters (System Management Center) link to access System Parameters.
   You see the System Parameters workspace.

4. Click the Performance System Parameters link at the top of the page.
   The Performance System Parameters page appears.
   In the row for Sys Item 31, click the Edit link, select one of the following values, and then click Save.
   Y (Yes). Default value. Allows the use of Average Invested Balances (ABALs) that do not add up to 100%. This option affects ABALs for Blended benchmarks, Floating benchmarks, and Floating active weight benchmarks.
   N (No). Does not support the use of Average Invested Balances (ABALs) that do not add up to 100%. This setting provides backward compatibility.
   The new value appears in the corresponding Sys Value cell. 

For more information about Performance System Parameters, see Performance Calculation.

Set Up the Custom Index Attribute for Historical Date

You can set up an attribute for any historical date during initial entity setup. This applies to all types of benchmarks, and saves setup time for complex custom benchmarks such as floating, blended, and others.

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Delete Custom Index Attributes

You can select multiple historical dates and delete previously defined index attributes. You can access them in the Custom Index Attributes tab on the Editing Entity screen, shown in the following figure.

When you click the Delete History option shown in the previous figure, the Delete Entity History dialog box appears with all of the historical custom index attribute dates.

To delete history, select one or more dates in this dialog box and click Delete Selected, as shown in the previous figure. In this example, if the custom index attribute on 5/1/2003 is deleted, the preceding index attribute (4/30/2003) takes effect when the custom index build runs.

Build Custom Benchmarks at the Security Level

The following describes the Build Security Level check box in the entity Custom Index Attributes tab, which is available for use with Blended and Floating custom benchmarks.

The custom benchmark builder can build both segment and security level returns for a custom benchmark. Both the segment and security levels are created for each entity build dependent upon the source data. The entity build uses whatever source data is available in the database for the indicated source entities to create the blend. The build currently cannot support source entities with duplicate securities due to constraints on the PERFORM database tables. This can be an issue when builds contain source entities with shared securities, for example, two equity benchmarks that both hold IBM. Another possible issue with a custom blend is when one source benchmark contains security level data and another source benchmark does not. In this case, the build creates a custom benchmark with the securities from only one source benchmark, which can be misleading.

This gives you the option to build the security level by entity. In a case where duplicate securities are contained in the underlying source entities, this option must be enabled for the entity build to be successful. The option is located in the window. The option is saved in the custom index attributes table under a column named BUILD_SECURITY_LEVEL. This option is only available to the custom benchmark types that support more than one source entity: blended benchmarks and floating benchmarks. If you assign this check box a value of:

• Selected. This option builds the security level for the custom benchmark. By default, this check box is cleared when you create a new custom benchmark. If you select this check box, the Do not build Target Dictionary below assigned level check box becomes unavailable.

• Cleared. If the option is not selected, as shown in the previous figure, the security level data is not built in the database.

Build the Target Dictionary at Assigned Level and Above

The following describes the Do not build Target Dictionary below assigned level check box in the entity Custom Index Attributes tab, which you can use with Blended and Floating type custom benchmarks.

This option allows you to build blended or floating custom benchmarks from source nodes with a different number of levels below them than their assigned target nodes. It determines whether the entity build process creates target dictionary nodes below the assigned level, and increases the compatibility between performance models. For example, you can use a 2-level source (fund, investment type) with a 1-level target (fund). When this option is:

• Selected. If you select this check box, the entity build process builds the target performance model from the assignment node up to the total level for the model. It does not process levels below the assigned node. For blended, floating, and active weight floating custom benchmarks, the system does not validate that the source performance model(s) and target performance model have compatible structures. For active floating weight custom benchmarks, the system does not confirm that the reference entity structure matches the target performance model below the assigned nodes.

By default, this check box is selected when you create a new custom benchmark. If you select this check box, the system does not process security level data. Therefore, the Build Security Level check box becomes unavailable, and you cannot select it.

• Cleared. If you clear this check box, the entity build process builds the target performance model all the way down to its lowest level.

When cleared, each time you assign nodes to the target model or save the custom benchmark, the system validates that the source performance model(s) and target performance model have compatible structures. It counts the levels below the assigned source node and ensures that there are at least that many levels below the assigned target node. If the target has fewer nodes, a warning message appears so you can correct the benchmark before you start the entity build process.

The sample custom benchmark, CIDXBL01, shown in the previous figure illustrates a scenario where the same two-level asset class model is used by both the source and target entities. The top (Total) level of the Asset Class Model from the source entities are assigned to the lowest (equity, cash, or bond) level of the target entity. This assignment can build because you selected the Do not build Target Dictionary below assigned level check box, indicating that only the Total level data is used from the source entities. Otherwise, if you did not select this option, you would need to create another performance model at the Total level, and you would need to calculate performance for each source entity, and then use that new Total level model in the definition of the custom benchmark.

Choose Same Source Entities within Multiple Target Nodes

You can choose the same entity as the source for two or more different nodes in a target dictionary using the Custom Index Attributes tab of the Creating a new entity dialog box. This applies to both Blended and Floating type custom benchmarks.

The following figure shows how you build a custom blended benchmark where you choose select nodes within a source entity. In this example, the target dictionary lists the Entity Total with the Investment Type and descriptions:

• Cash & Cash Equivalents – 30% of Asset Class Blend Cash & Cash Equivalents Node (Total --> Cash & Cash Equivalents)

• Fixed Income – 70% of Asset Class Blend Fixed Income Node (Total --> Fixed Income)

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Use Currency Conversion

Custom index builds can source component values in their base currency and translate those values into the base currency of the target custom benchmark. This process supports converting vendor-supplied data for index returns and non-return data such as market values.

For information on setting up custom benchmarks to perform currency conversions, see Create a Blended Weighted Benchmark, Create an Active Weight Custom Benchmark, Create a Linked Benchmark, and Create a Currency Conversion Benchmark.

Calculate Returns Using Currency Conversion

The following describes the logic used to calculate the Linked, Blended, and Floating benchmark returns when there is a currency conversion set. To calculate the currency converted return, the process:

1. Retrieves the period begin and end exchange rates where the FROM currency equals the base currency of the source index and the TO currency equals the base currency of the target index.

2. Calculates the Currency Returns for the period.
   Currency Return = (End Exchange Rate / Begin Exchange Rate) - 1

3. Converts Currency Returns to growth rates.
   Growth Rate = (Currency Return/100) + 1

4. Converts Source Index Returns to growth rates.
   Growth Rate = (Return/100) + 1

5. Multiplies the Source Index Return Growth Rate by the Currency Growth Rate over the period, and converts it into the Target Index Return.
   The weight columns are copied from the source to the target index, there is no conversion required.
   
   This data is described in the following table.

Currency Conversion Return Example

For this example, assume the following currency conversion: Source Index (USD BASE_CURRENCY)  Target Custom Benchmark (INR BASE_CURRENCY)

Data for the benchmark source index is listed in the following table.

Resulting target data for the benchmark is listed in the following table.

Complete the following:

1. Retrieve the begin and end exchange rates listed in the table below.

2. Calculate the Currency Return:
   ((44.25/43.66) – 1) * 100 = 1.351351

3. Convert the Currency Return into a Growth Rate:
   (1.351351/100) + 1 = 1.013513

4. Convert Source Index Return to a Growth Rate:. For example, Total Return:
   2.337513/100) + 1 = 1.023375

5. Multiply the Source Index Return Growth Rate by the Currency Growth Rate and convert into a return:
   ((1.013513 * 1.023375) –1)*100 = 3.7204

6. Weights are copied from the source data.

Calculate Market Values Using Currency Conversion

Eagle Performance can perform currency conversions for source data such as opening market values and closing market values during the custom benchmark build process.

To calculate the currency converted market value, the process multiplies the Source Market Value by the Exchange Rate as specified in the currency process. For example, if you set the Advanced field's Currency Process attribute to Begin Value, the calculation uses the exchange rate associated with the beginning of the period.

 A worked example is that a Source Begin Market Value of 100 USD converts to 4,366 INR (100 * 43.66 = 4,366).

Set Up Field Attributes for Currency Conversion

When you set up Advanced field attributes for use with builds for custom benchmarks that require currency conversion, you must define each field attribute's Currency Process setting and its Process setting correctly. You set up these attributes to enable Eagle Performance to calculate base and local returns, weights, as well as non return values that may require currency conversion, such as market values.

Currency conversion occurs for custom benchmarks that have an Exchange Rate Source Rule field value specified at the entity level to indicate currency conversion is needed. If you are setting up a field attribute to store a return or a non return value such as a market value that requires currency conversion, you must specify a value for the Currency Process attribute to enable currency conversion. You must additionally set the Process Attribute to a value of Custom Index for returns or to a value of Custom Index Weighted Field for non return fields such as a weight or market value. However, you do not need to specify a Currency Process attribute for weights, as they do not require currency conversion.

The following table describes how to set the Currency Process and the Process attributes in Advanced fields created for several sample scenarios. Some of these scenarios involve currency conversion, while others do not. The table also indicates whether the system uses the period begin and/or end exchange rates to perform currency conversion in each case.

Several Advanced field examples follow. For a general discussion about defining Advanced fields for custom benchmark builds, see Set Up Field Attributes for Custom Benchmarks.

Local Return Example

The following example shows the field attribute for a local return. Notice that the Process attribute is set to Custom Index and the Currency Process attribute is set to None.

Base Return Example

The following example shows the field attribute for a base return. Notice that the Process attribute is set to Custom Index and the Currency Process attribute is set to Return Value.

Weight Example

The following example shows the field attribute for a weight. Notice that the Process attribute is set to Custom Index Weight Field and the Currency Process attribute is set to None. Currency conversion does not apply to weights.

Begin Market Value Example

The following example shows the field attribute for a beginning market value. Notice that the Process attribute is set to Custom Index Weight Field, which can apply to non return values such as weights and market values. In this case, the Currency Process attribute is set to Begin Value, so that the currency conversion process uses the beginning exchange rate.

If you are defining a field attribute for a gross ending market value, you set the Currency Process attribute to End Value, so that the currency conversion process uses the ending exchange rate.