As a specialist investment management firm that is trusted by our clients to beat a specific benchmark, we define risk as a situation that can lead to us not delivering what we are entrusted to do. There is an array of risk management tools at our disposal, the main tool being the establishment of proper risk management parameters in order mitigate risk. Here are examples of some of the risk parameters that we use for some of our long-only mandates:

Portable alpha, also known as “alpha transport”, refers to the ability of a portfolio manager to extract the alpha generated within any investment portfolio from the beta, and to then apply this outperformance to any other asset class the manager chooses, which ultimately eliminates the market risk of the manager’s portfolio.

So the sweet spot for us on the relative / absolute return continuum is the cross-section where the return objective leans towards actively exploiting investment opportunity through skills sets, and the risk objective is not to take more than market risk when replicating or beating a benchmark.

An example of our Fixed Income strategy pool limits (risk parameters)

Core Manager Limit 30%
Satellite Manager Limit 15%
Temporary Cash Limit 40%, falling to 10% if the holding period exceeds 90 days
Specialist Credit Manager Limit (in-house target) 7.50%
Number of Managers >4
Liquidity >50% in managers that provide monthly or better liquidity
Look-through Duration Exposure Limit Benchmark modified duration +/- 2
Look-through Credit Exposure Limits Weighted average credit quality better than A- <40% in instruments worse than BBB &lt60% of non-government exposure exposed to any one economic sector &lt15% in non-debt assets (property, equity)

An example of our Derivative Overlay limits (risk parameters)

Asset ClassLimits
Inflation-linked Assets >50%
Nominal Assets >-10%
All Assets 75% - 125%

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