Risk Management
Our Risk Manager duties and responsibilities, for the funds under our management, mainly focus on the following areas:
- Assume full responsibility before CySEC;
- Establish a Risk Manual and supporting procedures that are in line to the company’s business model and set-up;
- Monitor compliance to regulatory limits as well as other internal limits that shape up the growth of the managed funds and control risk concentrations;
- Monitor effectiveness of internal limits and where necessary propose the set-up of new internal limits at the fund management company level and managed funds level;
- Ensuring that the risk profile of the AIFs under management disclosed to investors in accordance with Section 23(4)(c) of Directive 2011/61/EU is consistent with the risk limits that have been set in accordance with Section 44 of Delegated Regulation n°231/2013 (“the Delegated Regulation”);
- Ensuring that the risk profile of the funds under management corresponds to the size, portfolio structure and investment strategies and objectives of the said managed funds as laid down in their Memorandum and Articles of Association and Prospectus;
- Monitoring compliance with the risk limits set in accordance with Section 44 of the Delegated Regulation and notify the BoD in a timely manner when a managed fund’s actual investments profile appears to be inconsistent with these limits;
- Develop methodologies for assessing/measuring market risk, liquidity risk, credit and counterparty risk as well as operational risk, compliance risk, AML risk and ESG risk;
- Modelling quantifiable risks and developing Value-at-Risk and other quantitative methodologies where necessary;
- Develop stress test methodologies for specific high-risk exposures;
- Preparation of Key Information Documents (supported with the necessary risk analysis) where required;
- Conducting stress tests, on a bespoke basis, which measure to what extend changes in market conditions may influence adversely the value of the managed funds at a given point of time. Stress tests are conducted either using historical scenarios of extreme market developments and price changes, or using sharp movements in performances and in factors related with the portfolio valuations, so as to identify the portfolio sensitivity in similar extreme situations. Everything made to measure in accordance to your own portfolio idiosyncratic factors and to the macro-economic factors affecting the specific investments as well as the investors of the specific managed fund.
- Updating stress test scenarios and adopting them to portfolios’ composition so as to cover the main risks and reflect any changes in the markets which in severely adverse conditions may generate a major decrease in the value of managed funds;
- Conduct back-testing to assess risk model errors and make adjustments where needed;
- Reviewing at least on an annual basis the managed funds’ valuation policy and ensure the suitability of such valuation policies to the corresponding investment strategies;
- Performing, in consultation with the Compliance Officer, due diligence on potential service providers in order to identify operational risks deriving from this delegation;
- Providing to CySEC information for the funds under management regarding:
- the percentage of the managed funds’ assets which are subject to special arrangements arising from their illiquid nature,
- any new arrangements for managing the liquidity of the funds under management,
- the current risk profile and the risk management systems employed to manage market risk, liquidity risk, credit and counterparty risk and other risks including operational risk,
- information on the main categories of assets in which the AIFs invested, and
- the results of the stress tests performed.
- Monitoring operational risk and ensure the following areas comply with the minimum regulatory standards:
- Business Continuity and Disaster Recovery Planning;
- Remuneration Policy;
- Data security;
- GDPR (General Data Protection Regulation);
- Workflows and data communication between Back Office, Portfolio Manager, Risk Manager, Depositary and Administrator.
- Assessment of operational risk exposures of each fund under management and reporting.
- Drafting of the Annual Report (based on audited financial statements) and Half Yearly Report (based on unaudited financial statements) of the managed funds in regards to risk related information that the BoD, CySEC and Investors shall be aware of;
- Monitoring the proper implementation of the Risk Management policy in accordance with the respective decisions of the Board of Directors;
- Escalate and report on risk related issues, including limit excesses;
- Design and implement outsourcing risk assessments;
- Preparation of risk related reg. returns and submission to CySEC.
Development of the Risk Management Process
The Risk Management Process (RMP) development and documentation is a pre-requisite. It forms the backbone of your risk management infrastructure, containing your fund’s most basic statement on financial risk identification and management. Typical elements of the RMP document include:
- Risk Identification: Market Risk, Liquidity Risk, Concentration Risk, Credit & Counterparty Risk, Operational Risk, Valuation Risk, Compliance Risk, AML risk…to name a few of the most important areas
- Risk Measurement & Management for each identified type of risk
- Limits Setting and Monitoring, including escalation procedures
- Governance & Organization of the Risk Management function
- Risk Governance structure
- The Risk Management function
- The Risk Committee (if necessary)
- The Risk Management function’s representation in the governing body
- Independence of the Risk Management function and safeguarding potential conflicts of interest
- Risk analyses, risk measurement and production of management information reports.
The RMP framework of the managed funds is designed and implemented in compliance with the AIFMD requirements. Both a quantitative and a qualitative assessment of the effectiveness of the managed funds’ risk management policies and mechanisms are performed, including risk analysis and stress tests, depending on their risk heatmap and risk-return investment profile.
Our Risk Management team is dedicated to ensuring the protection of your fund. We oversee all responsibilities associated with the assessment, monitoring, and review of your funds’ risk exposures. Providing regular updates to your governing body and senior management in accordance with our risk management methodologies and tools, which include tasks related to:
- Risk Profiling
- Limits Setting, Monitoring and Management (though escalation procedures designed to suit your workflow)
- Credit & Counterparty Risk Management
- Market Risk Management
- Liquidity Risk Management
- Operational Risk Management
- AML Risk Assessment and Scoring
- Risk Measurement and Risk Analytics
- Stress Testing
- Capital Adequacy
- Crypto-asset risk management
- Environmental, social, and governance (ESG) investing. Screening investments based on corporate policies and encouraging companies to act responsibly. Many funds now offer investment products that employ ESG principles.
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