Portfolio Management Methodologies
“Portfolio diversification is the only real free-lunch in financial markets”
Asset allocation is the process whereby an investor decides how to invest money achieving the right balance between risk and return. Relying on our proprietary technology we find the minimum risk portfolio under a set of flexible constraints given a target return demanded by our client. Our asset allocation methodology can handle different risk measures such as portfolio return volatility, Value-at-Risk, expected shortfall, portfolio convexity and negative skewness. Consider the following example: one of our clients asked us to find the optimal allocation for our £200 mln portfolio, under the constraints that all the securities be AA-BBB rated, 50% of them be ECB eligible and the portfolio duration be less than 5 years. We delivered the optimal portfolio weights and performed stress test analysis to make our clients aware about possible risks they did not think of. We use our proprietary and internally developed multi-factor model to identify and measure the sources of risk affecting a portfolio of securities. First of all, we use statistical analysis to identify the main sources of uncertainty for a given set of financial variables. Then, we estimate the correlations among these factors and calculate the portfolio sensitivities to them. Finally we stress the portfolio returns by bumping the relevant risk factors according to historical and what-if scenarios.
Some typical Portfolio Allocation services we provide:
Portfolio management and asset allocation. Under a wide set of flexible constraints matching the portfolio managers’ investment needs, we deliver sophisticated analytics to solve virtually any investment decision problem. We manage portfolios that mix cash, vanilla and exotic derivatives.
Performance assessment and monitoring. Although it is possible to find good performers for specific asset classes, few investment firms show high level of proficiency across all financial markets. The purpose of the manager selection process is to identify those investment houses most likely to excel for a given mandate.
Portfolio quantitative analysis. Macroeconomic scenario analysis, stress testing, Value at Risk, marginal asset performance and volatility contribution, portfolio return skewness and kurtosis analysis.