Investment risk management is embedded in our strategies on a pre-trade and post-trade basis.
Prior to the launch of a new systematic strategy, the strategy must undergo rigorous backtesting and evaluation across several risk/return metrics by the Portfolio Management team as well as independent assessment and model validation by the Risk Management team to determine the strategy’s robustness. Models are calibrated to reflect our target risk appetite i.e. our appetite for leverage, volatility and max drawdown and any pre-trade risk limits are embedded in the models. Once strategies prove to be robust in consistently delivering high risk-adjusted returns across different time periods and regimes, they are presented to the Investment Committee for review and if approved they go live.
Thereafter, we employ a post-trading risk management approach whereby we closely monitor a number of key risk indicators with ultimate purpose to identify whether our risk/return targets are being met within a reasonable range. Those KRIs are compared to different thresholds, the Early Warning Level, the Risk Tolerance Level and the Stop Loss Level; increasingly reflecting the deviation of the investment performance from our target risk profile and the historical behavior of our strategies. Different corrective actions are associated with each threshold.
The company aims to maintain a strong, well-defined and holistic Risk Management Framework characterized by effective and comprehensive risk governance. The main pillars forming the risk management framework are as following:
• Strong Risk Governance – Risk Culture
The Board of Directors and Senior Management are responsible for the overall Risk Strategy. The BOD approves all risk policies and are responsible for the oversight of their implementation. The Risk Manager reports directly to the Board and also serves as an Executive Member of the Board. The Company has adopted the “Four lines of defense model†to develop a strong Risk Governance Framework. This governance model is utilized to facilitate an effective risk management system by having separate and clearly identified lines of defense and promote risk ownership, accountability and segregation of duties. Utmost importance is placed in building a sound risk culture of risk awareness and risk management embedded within all functions to promptly identify, measure, monitor, manage and report all risks affecting the managed assets.
• Holistic Risk Management
The company takes a holistic view on risks, covering all applicable types of financial, operational, compliance, reputational and strategic risks - quantifiable and qualitative risks.
• Formalized Risk Appetite
Risk Appetite clearly articulates the company’s attitude towards risks, promotes informed and consistent risk-based decisions and alignment with strategic objectives. The company has formulated a Risk Appetite Framework (RAF) Policy where it has:
· identified all the risks to which the managed assets may be exposed
· formalized the company’s Risk Appetite towards all identified risks
· defined Key Risk Indicators (KRIs) and associated Risk Limits (where appropriate) for each risk type (both quantitative and qualitative risks)
assigned risk ownership for all identified risks
• Risk Limits – Systems & Controls
· Risk Limits are cascaded from Risk Appetite levels to ensure that risks remain within the overall Risk Appetite
· Risk Limits monitored live, daily, monthly depending on the KRI metric
Systems and strong controls to ensure compliance with policies, procedures and risk limits