Portfolio of Portfolios (P2O)

A platform for goals-based investment

 Getting married, buying a house, paying for your children's education, and other events are expensive life milestones. There are three parameters for such events: what point in life the event comes, how much capital is needed to fund it, and how certain the amount should be attained. “Portfolio of Portfolios (P2O)” is a platform for capital formation and portfolio management that allows users to create multiple specialized "virtual portfolios" tailored towards goals associated with specific life events. P2O is being developed by Takahiro Sasaki, in collaboration with Takao Tajiri from Sony Financial Holdings.

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 The core of P2O consists of two elements. One is constraint satisfaction logic, which roadmaps the initial and periodic injections of funds as well as the asset allocations to satisfy multiple specified goals. Most prevailing industry approaches evaluate risk tolerance based on individual attributes such as investors’ wealth levels and their personal characters. P2O, however, takes a unique approach. Risk tolerance is attributed to each distinct life event when solving the constraint satisfaction problems. This makes it possible to implement capital formation and asset management reflective of the varying degree of importance and priority level of each event.

 The second core element of P2O is how it manages virtual portfolios for each goal. Its management system makes it more readily apparent how much progress the investor has made toward each goal. It also allows for partial liquidation of investments during the asset management term depending on progress toward the goal, reallocating excess returns to other goals, etc., in order to maximize the probability of reaching every investment goal. Moreover, all of this is achieved while having only one master portfolio. Funds are moved between different virtual portfolios by juggling assets within the master portfolio as much as possible, thus minimizing market transactions. P2O can also be set up to prompt portfolio reevaluation not only on a routine, periodic basis, but also when a large-scale market condition shift (regime switch) resulting from socioeconomic change is detected or predicted.

 In addition to these two core elements, P2O has an interactive user interface layer for setting financial goals related to life events. It also incorporates modern portfolio theory to optimize asset allocation for the specified risk profile. Because P2O has a layer-based construction, it can be flexibly adapted to various asset classes, and tailor combinations of asset classes to market segments such as mass retail, private banking, and entrepreneur-oriented services.

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[ Application example: Hoshiimono Navi Beta by Sony Bank ]

One example of P2O’s implementation is Sony Bank's "Hoshiimono Navi Beta" (Japanese only) service, which was launched on April 3, 2017. Using this interactive tool, a robot-advisor helps you select a savings and investment stance for each of multiple financial goals and ultimately create an asset management plan that will achieve all of those goals. From modestly priced purchases to the large sums needed for such as retirement, up to five different goals can be set simultaneously. Assets for building the portfolio are not limited to securities, but also include deposit , making “Hoshiimono Navi Beta” comfortable for even novice investors to use.

2017/09/29
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