Active Risk Management
Active Risk Management is an essential element in our strategy to preserve capital and enhance returns. Our risk management process is designed to protect against unacceptable loss by implementing the following principles:
- Exposure Limits: We monitor and limit exposure to any single source of risk, whether that is a security, sector, industry, or theme. Quantitative analytics are used to understand the correlation and relative volatility between many of these variables.
- Volatility Management: Volatility risk is the potential for large, short-term swings in asset prices. We believe our value discipline helps reduce this risk , and our tactical asset allocation process can actually capture opportunities in a volatile market. To reduce currency volatility, we apply selective currency hedging where appropriate.
- Liquidity: The inability to convert a security back into cash can represent a significant risk. Our security selection process limits liquidity risk through minimum market capitalization and trading volume limits. In addition, our strategic asset allocation process and broad diversification ensure a base level of liquidity in all our portfolios.
- Non-Discretionary Loss Limits: Non-discretionary loss limits remove emotion from the investment equation by ensuring that no single investment can erode capital beyond a given tolerance level. If a position reaches a preliminary loss limit, no further capital will be allocated to it, and if the final loss limit is reached, it is sold. These tolerance levels are pre-defined and cannot be altered.
- Sensitivity Analysis: We use quantitative analytical tools to monitor and evaluate the sensitivity of our portfolios to a wide range of macroeconomic and market variables including the business cycle, interest rates, and foreign exchange rates to name just a few. This analysis helps us to better optimize the risk and return characteristics of our clients’ portfolios.