Finaltis Risk Management June 2012

Transcription

1 Finaltis Risk Management June

2 Disclaimer This document does not constitute any recommendation or investment proposal. It was issued for information purposes only. It has no contractual value and may contain errors and/or omissions. Nothing contained herein shall in any way constitute an offer by Finaltis to provide any service or product, or an offer or solicitation of an offer to buy or sell any securities or other investment product. Finaltis will not be liable for the content of these pages, nor for any use thereof or reliance placed thereupon by any person. Product(s) described herein is/are not available to all persons in all geographic locations. It is/ they are of a very speculative nature so that its/their success may be affected by a deep fall in assets value as well as a total loss. It/they may invest in OTC instruments which can be volatile and render difficult to predict or anticipate any fluctuation. The institutions with which it/they will contract may encounter financial difficulties impairing the value of the product(s). There is no guarantee of capital preservation and minimum return. There can be no assurance that the investment objectives shown are achieved. This product/these products as well as some of those in which it/they is/are invested are offshore incorporated, whether they are listed or not. Investors should be aware that it/they may be illiquid and that any redemption request may be subject to a prior notice period. 63, Avenue des Champs Elysées Paris France Tel. : (33) Fax : (33)

3 Contents I. Overview II. Objectives Capital Protection Risk reports Tactical Allocation III. Means IV. Conclusion V. Appendices VI. Contacts

4 I. Overview Strategic Choices Liquidity : Liquid assets only, no credit, no exotics Operational : Automated proprietary middle office platform Technical : Daily back up of IT systems Risk Measures Proprietary tail risks and cumulative loss measures Historical and parametrical stress tests Independence, ethics and control reactivity Real time positions and limit controls Independent research Transparent and extensive risk reporting Specific and detailed risk reports 4

5 II. Objectives Capital Protection To measure risks in an appropriate way Operational Risk : human failure risk or deficiency of the systems Market Risk : market prices fluctuations risk Liquidity Risk : market impact risk, lack of market depth or important bid-ask spreads Model Risk : risk derived from wrong pricing models, systematic trading based on conceptual errors or false assumptions To manage short term extreme risks Full Transparency Detailed daily reports Specific requests are dealt with Assistance to tactical allocation decision making process 5

6 II. Objectives Capital protection 1. Operational Risk 2. Market Risk 3. Liquidity Risk 4. Model Risk 5. Information 6. Decision support Operational risk control Written procedures Reconciliations at all levels Front Office vs Middle Office vs Counterparties AlphaRisk proprietary software Middle Office referential database including operations management, P&L calculation Automated or semi automated procedures Continuous Risk Control training of middle officers Automated daily backups of computer systems Daily backups of critical systems on magnetic tape 6

7 II. Objectives Capital protection 1. Operational Risk 2. Market Risk 3. Liquidity Risk 4. Model Risk 5. Information 6. Decision support Daily tail risk control Set of risk limits for each strategy On the Conditional Value at Risk Ex Ante 1 day 95% On the Value at Risk Ex Ante 20 days 99% or the Value at Risk Ex Ante 5 days 95% On volatility Ex Ante risk contributions By instrument By Strategy By Asset class Historical and parametrical stress tests Real time risks and limits monitoring Control of foreign exchange risk on processes and on foreign currency classes Real-time position monitoring Currency hedging on a monthly basis Intra-month hedging should the residual exposure exceed a pre-defined limit Effective hedge of foreign currency classes against currency fluctuations 7

8 II. Objectives Capital protection 1. Operational Risk 2. Market Risk 3. Liquidity Risk 4. Model Risk 5. Information 6. Decision support Liquidity risk control Use of liquid assets exclusively European stocks with market capitalisations above 400 million Euros Futures contracts traded on organized markets Calculation of the time needed to close all positions Under the restrictive assumption that the process can not exceed 20% of the average daily volume of the past 6 months Daily monitoring of futures maturity dates 8

9 II. Objectives Capital protection 1. Operational Risk 2. Market Risk 3. Liquidity Risk 4. Model Risk 5. Information 6. Decision support Model risk control Independent research Conventional risk measures... Cumulated loss Correlation Value at Risk Conditional Value at Risk... And complementary proprietary risk measures Extreme daily loss Cumulated loss Correlation of extreme events Value at Risk Conditional Value at Risk Financial assets distributions modeling (stocks, futures ) Alternative strategies distributions modeling Ex Ante risk measures vs Ex Post performances comparison 9

10 II. Objectives Risk reports 1. Operational Risk 2. Market Risk 3. Liquidity Risk 4. Model Risk 5. Information 6. Decision support Reports Many risk measures calculated on different time horizons On 1 day On 5 days On 20 days Stress tests and scenarios on 1 and 5 days to simulate the behavior of the portfolio during extreme variations such as: 9-11, 2001 Fukushima tsunami 10% drop of all equity markets Detailed report issued daily 10

11 II. Objectives Decision support for tactical allocation 1. Operational Risk 2. Market Risk 3. Liquidity Risk 4. Model Risk 5. Information 6. Decision support Decision support for tactical allocation Monitoring the risk contributions of each strategy enables the allocator to optimize risk-return. Knowledge of each strategy s ex ante risk characteristics enables the allocator to take advantage of "natural" cycles to efficiently reduce / increase allocation Ex Post confrontation of Ex Ante risk measures and gross returns will validate or invalidate risk models, and thus increase / reduce confidence in them 11

12 III. Means Risk control is at the heart of Finaltis culture: Risk control is involved in Allocation Committee decisions Dialogue is ongoing between managers and Risk Control, which can be a source of innovation at the 1 st level risk control All Finaltis professionals have a strong risks ethics, resulting in a high quality 1st level risk management All senior Finaltis professionals have experience in market risks, modelling, and operational risks 12

13 III. Means Risk control is based on robust expertise Nicolas Renaud (Head of Risk Control): expertise in market and operational risks, modelling, IT and development Muriel Bonnet (Head of Compliance): regulatory and legal expertise Risk related research: expertise in modeling, numeric and stochastic calculation IT Team: operational, development and implementation expertise Computerized tools: P&L and real time risk control 13

14 III. Means Risk control is based on proprietary tools AlphaRisk independent proprietary application, used for operations management, P&L calculation Independent proprietary software to get a real-time overview Profits and losses Contributions to profits and to losses VaR and CVaR Volatility Net exposure Gross exposure Foreign currency exposures Liquidities Stress tests Automated or semi-automated software Meets Finaltis specific needs Robust and Reliable Flexible Real time monitoring tool 14

15 IV. Conclusion Strong risk culture Risk control is the backbone of Finaltis Capital protection on the short and medium term Daily tail risk proprietary models Stress tests Added value for tactical allocation Ex post risk measure and qualification Transparent and detailed communication Application independent from management Positions, performance and risk attribution, independent indicators Daily detailed report Real time risk control 15

16 V. Appendices Stress tests Example of stress tests on a statistical arbitrage strategy Scénario PNL Flight to Large Caps -0.55% Market Crash -0.31% Bankruptcy / news -1.56% Short selling ban -0.46% Widening inter industry -0.81% Liquidation 10 Days Liquidation 20 Days Example of stress tests on a trend following strategy Scénario PNL Krach % Krach % Krach obligataire -2.56% Karch Oct % Recovery Fears -3.55% USD Rebound -5.12% Nuclear Fears -5.68% 16

17 V. Appendices Risk contributions Example of the contribution to CVaR of the different asset classes of a trend following strategy Funds 0.06% Stock Index -0.74% Short Term Rates -0.24% Long Term Rates -0.40% Currencies -0.16% Commodities -0.38% -0.90% -0.70% -0.50% -0.30% -0.10% 0.10% 0.30% CVaR 95% 17

18 V. Appendices 1 day Ex-Ante risk measure / 1 day Ex Post return Example of a comparison between Ex Ante risk measures and Ex post performances to validate the model or not 18

19 VI. Contacts Finaltis 63, avenue des Champs Elysées Paris - France Denis Beaudoin Chief Executive Officer dbeaudoin@finaltis.com Nicolas Renaud Head of Risk Control nrenaud@finaltis.com Yvonne Chansena Customer Relationship ychansena@finaltis.com Christophe Olivier Chief Investment Officer colivier@finaltis.com Muriel Bonnet COO, Head of Compliance mbonnet@finaltis.com Frans Harts Customer Relationship fransharts@finaltis.com 19