Case study:

Consultancy for an investment fund

Summary:

We were asked to provide independent risk management and advice to an investment fund board.

Client requirement:

The client was the board of a regulated investment fund. They required an independent risk management report for each month’s board meeting.

Solution:

Each month, we took the positions and valuations of the fund from the custodian – guaranteeing independence from the investment managers. We would then analyse the positions held, inspecting (amongst other items):

-Exposure to different asset types.
-Issuer / counterparty exposure.
-Volatility versus target.
-Leverage.
-VaR.

Any items of concern (e.g. exceeding an exposure to a limit on a specific asset, a significant increase in leverage since the previous month) would be discussed with the fund managers and then highlighted to the board, along with a general commentary on the investment strategy and the performance of the fund. Specific attention was focused on rules laid down by the regulatory regime (in this case, UCITS), limits specified in the fund prospectus, and strategies and philosophies described in the fund marketing material.

In addition, stress tests were designed in collaboration with the fund manager and custodian and the results of these tests were reported on to the board.