Risk is an inseparable part of the investment process and is essential for return generation. The role of risk management is not to eliminate risk, but rather to classify, measure, understand and manage it. If done right, it helps investors to take risk in line with their risk profiles, to avoid risk types they do not want to be exposed to and often to mitigate losses from unexpected events.
In line with our investment philosophy, we believe in systematic approach to risk management too. Systematic risk management can be described as a set of predefined measures, limits and a set of actions to be taken when these limits are breached. The specifics of any such risk management system, however, depend on the type of the strategy that it is designed for, as well as on its risk profile.
For our systematic strategies, we use exclusively endogenous risk management – allocation is adjusted automatically within the system so that it complies with the given rules and limits at any point in time. In the case of our discretionary strategies, the adjustments made to satisfy all risk constraints are done endogenously in accordance with the trader’s strategy, though still subject to an approval from the risk perspective.