Risk Management

Risk Management

Our Risk Management team oversees all aspects of both financial and non-financial risks including Market and Liquidity Risk, Counterparty Risk, Model Risk, Operational Risk, and Technology Risk. The firm employs a robust Enterprise Risk framework, which provides for a strong governance structure and ensures independence in risk making decisions.

We believe it's important for Risk Management to interact closely with the Portfolio Management, Research, and Trading teams, working together in managing risk. Together, we aim to ensure that portfolios are manageable through sudden and severely adverse stress events.

Risk Management Framework

Managing risk and preserving capital for our clients are of primary importance to us. For this reason, we have developed a rigorous risk management framework monitoring various of types of risks, with the objective of keeping them within predefined limits.

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Market Risks

Market risk is the possibility of losses arising from adverse movements in market prices. It is usually measured by the volatility of the instruments in the portfolio, and it can be further classified in equity, interest rate, currency, and commodity risks depending on the types of asset classes in which a portfolio is invested. In order to control our market risk, our automated risk management technology periodically monitors the the volatility in our investment portfolio and rebalances accordingly to keep it within predefined levels set by the investment committee.

Credit Risk

Credit risk, also known as counter-party risk, is the possibility of losses arising from a borrower or a counterparty default by failing to make required payments. In our situation, we have credit risk exposures with counterparties keeping our trading capital in custody, including our prime brokers and custodians. In order to monitor our credit risk, our team periodically reviews our current counterparties to make sure that our credit.risk exposure is within predefined limits. In addition, we aim at establishing relationships with multiple counterparties in order to mitigate our financial exposure to one particular entity.

Operational Risk

Operational risk is the risk caused by inadequate internal processes and technological systems within our organization or from external events like regulatory, compliance, and legal risks.

Since we rely heavily on trading algorithms to execute our systematic investment strategies, operational risk could arise from glitches in our investment algorithms and errors in the development of our technology.

In order to minimize our operational risk, our team adopts a rigorous testing process of our technology and invests in new investment products by using proprietary capital for an initial period before the new investment product is offered to our clients. Since most of our investment technology is proprietary and developed in-house, we have full control and speed in case modifications need to do to our trading algorithms. In addition, our team periodically reviews our backup procedures and disaster recovery systems to mi technology and operations. downtime in our investment.

Liquidity Risk

Liquidity risk is the possibility that for a certain time period a given financial asset cannot be traded quickly enough without having a substantial market impact due to a lack of buyers or sellers. This situation arises in particular with alternative investment managers, like private equity, and venture capital companies making investment in private equity or debt securities, or with hedge funds trading illiquid and more exotic securities.

We try to minimize our liquidity risk by investing the majority of our capital in public investment products traded on regulated exchanges, meeting certain criteria regarding liquidity and trading volume.

Margin Risks

Margin risk is the possibility of incurring losses due to margin calls from a broker, and consequent liquidation of positions, arising from a lack of enough capital needed to keep the investment positions opened. In our case, margin risk arises from the fact that our investment strategies trade derivative instruments with embedded leverage due to the use of margin financing. In order to minimize margin and leverage risks, we require our clients to properly fund their investments in our funds by depositing enough capital to minimize margin risk.

Execution Risks

Execution risk is the risk due to the possibility of receiving a different transaction price from the moment when a trading decision is made until its effective execution. It results from many reasons, such as human delays in executing an investment decision in the case of discretionary investment managers, or from the need to reduce market impact due to a lack of sufficient liquidity in the financial instrument traded in case of large institutional investors. We try to mitigate execution risk by utilizing automated execution algorithms that try to capture investment opportunities as soon as they arise.

Asset Class Risk

Asset class risk is the possibility of losses by having a portfolio concentrated in a particular asset class. This risk arises typically in some hedge fund strategies, like equity long-short, credit, convertible bonds, merger arbitrage, activist investors, or commodity traders who invest in only a particular asset classes. Since a major component in the returns of a particular security are due to systemic factors affecting a particular asset class, measured by its beta, the previous investment entities are usually excessively exposed to risks affecting a particular asset class in a specific time period, unless they hedge their market risk exposure with proper derivative instruments.

We aim at reducing out asset class risk exposure by investing in multiple strategies and imperfectly correlated products covering multiple asset classes, including Equity, Fixed Income, Commodities, Currencies, and Volatility.

Sector Risk

Sector risk is the risk arising from investment in a particular market sector, such as technology or biotech. This type of risk is prevalent in equity and credit hedge funds targeting a particular industry, or in venture capital and private equity companies which are highly exposed to the technology sector.

In order to minimize sector risk, we have the objective of deploying capital globally on multiple asset classes and different equity sectors through a diversified portfolio.

Geographic Region Risk

Geographic region risk is the possibility of losses due to the concentration of investments in a particular geographic area. This type of risk is prevalent in hedge funds and alternative investment managers focusing on a particular geographic region, like North America, Europe, Developed World, or Emerging Markets. In order to mitigate geographic region risk, we invest globally on multiple public exchanges and investment products across the world.