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Risk Management

HomeServicesRisk Management
HomeServicesRisk Management

Our Risk Management Solutions in a Nutshell

Luxembourg Fund Partners offers integrated risk management services to investment fund managers. We set up a variety of monitoring tools and other risk management processes in order to verify that fund transactions and operations comply with the investment policy and legal restrictions.

Our well-structured controlling and reporting systems guarantee an effective assessment and management of financial risks and involve a full range of risk indicators adapted to the risk profile, the asset class as well as the investment strategy of each fund. The Luxembourg Fund Partners risk management process takes into account the best market practices and complies with the general ALFI and ESMA guidelines.

The risk management process can, thus be summarized as a recurring cycle of identification, measurement, monitoring and reporting of risks. The risk management services offered include:

  • Measurement and monitoring of portfolio risk;
  • Risk limits/risk appetite;
  • Risk modelling and risk aggregation techniques;
  • Regular control of asset evolution for UCITS and SIF vehicles;
  • Independent supervision of the NAV;
  • Performance assessment of the investment manager;
  • Production of risk management reports;
  • Computation of various risk measures – Sharpe Ratio, Volatility, Tracking Error, Information Ratio, Alpha and Beta;
  • Historical and parametric VAR calculation (95% & 99%).

Value at Risk and Scenario Analysis

With respect to the regulations imposed by the CSSF Circular 11/512, including the ESMA related guidelines, appropriate risk management procedures and processes must be implemented in order to monitor current risk exposures in the most adequate manner.  

For the assessment of financial risk we normally use the commitment approach in order to compute a fund's global exposure. In some cases we apply the Value at Risk (VAR) approach completed by the Scenario Analysis (stress testing). In that case our risk management experts duly evaluate the most suitable methodology to compute the Value at Risk (VAR). The most common methods used are the historical and parametric VAR calculations.

Value at Risk

 

In normal conditions, the VAR can be used by any financial entity to measure the market risk exposure and to capture the potential losses of their traded portfolios from adverse market movements over a specified holding period with a certain level of confidence.  

Stress Testing

 

Stress testing can be interpreted as a scenario analysis representing complementary metrics to VAR. It refers to a set of techniques used to estimate losses in extremely unfavourable combinations of events or scenarios. As a result, these potential losses can then be compared to the available capital and cash reserves in order to ensure that they can be covered without putting the firm at risk.