Portfolio risk management

Portfolio risk management for asset management

Many asset managers are moving into new and more complex strategies, including hedge funds, liability driven investments and absolute-return retail products. The increasing complexity of business operations has increased demands for back-office operations and processing, including for UCITS III. There is a risk that an organisation’s existing systems and controls may be unable to deal with this increase in complexity of products and underlying assets.

Be it to comply with regulatory purposes (e.g., for UCITS III) or to conform to best practices, organisations must establish an extensive system of risk-limitation in order to ensure that the risks related financial instruments in portfolio (e.g., derivatives, structured products) are duly and accurately monitored, measured and managed.

Reply supports organisations with portfolio risk management by:

  • Determining the global exposure of a portfolio, using the commitment approach and/or an internal model, based on Value-at-Risk (VaR), taking into consideration the different sources of global exposure (general and specific market risks);
  • Developing and implementing approaches for market risk measurement, using a relative VaR or an absolute VaR model;
  • Developing and implementing methods to assess leverage;
  • Developing and implementing methods to calculate counterparty risk associated with certain financial instruments in the portfolio;
  • Ensuring the actual exposure is within the limits set by the regulator, the prospectus or the Directors.



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