AIFMD.

Providing Robust risk management services to alternative investment fund structures whilst helping to adhere to the AIFMD regulatory regime.

RISKRADAR, YOUR ONLINE RISK MONITORING PLATFORM.

An interactive online platform that manages and monitors portfolio risk for a variety of UCITS/AIF fund structures and investment strategies.

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AIF's - Tradable Assets

AIF's - Alternative Assets

Consultancy Work

A team of risk management professionals
here to support you.

AIFMD - Risk Management Services

AN End to End Risk Reporting Solution

With the AIFMD, fund managers need to comply with stringent reporting requirements. Arkus offers its clients an end-to-end AIFMD reporting solution. Our experience in data management enables us to connect with all the stakeholders in order to collect the required data. We calculate most of the risk numbers, including the most sophisticated ones.

Practical challenges our clients face

Document the independence of the risk management function when:

      • Teams are small;
      • the risk are intrinsically linked to the investment and management of projects, where there is a structured evaluation and fundamental analysis of each investment opportunity.

Formalize and document the risk management framework:

      • formalise the risk management process, including the AIFs’ risk profile;
      • formalise tools to monitor relevant risks and stress test them in a meaningful and proportionate way. 

Report on risk management:

      • To the AIFM senior management and the respective board
      • To investors and the regulator. 

Alternative Investment Funds (AIFs) - Liquid Assets

Portfolio Level Reporting

Value at Risk (VaR) – Absolute or relative 

Arkus will compute VaR on various time horizons from one day to one month at several confidence intervals, conditional VaR, VaR contributions at the position level and the daily back tests required by regulation to cover market risk. The risk numbers will be calculated using a factor model and full valuation approach in a Monte Carlo Simulation framework. Linear Volatility as well as a sub-additive decomposition of it are also available. Leverage calculated as the Sum of Notional will also be provided in conjunction with the VaR results.

If required, Arkus will make suggestions for potential mappings or set-ups of assets. A mapping report and also a report of the proxied assets (if any) is provided each time a risk report is delivered. All mapping and relevant risk information (such as DV01, CS01 etc.) are available in RiskRadar™.

Regarding structured products Arkus has a large library of pricers for derivative products which is available for risk modelling if underlying data is sufficient. We furthermore have the possibility to create non-linear derivatives on composite assets including multiple underlying instruments. This does e.g. enable us to capture optionality on bespoke indices or baskets of assets. Should none of the set-ups or current pricing functions provide an adequate fit, Arkus can develop specific pricing functions for bespoke structured products upon request.

For AIFs, Arkus will support you to calculate the exposure of the AIF managed in accordance with both the gross method and the commitment method, taking into account the subtleties of AIFM leverage calculation.

Arkus will provide an extensive liquidity report to fully monitor the liquidity of the portfolio. Our liquidity reporting comprises the asset and liability side both in normal and stressed scenarios at several time horizons. Arkus will provide you with a dedicated report to monitor the liquidity profile of the portfolio. This report shall enable you to easily contrast the asset and liability side. We have developed a simple and transparent methodology based on the metrics and data already used or calculated for the risk profile monitoring. The liquidity indicators are based on: 

  • The redemption patterns for each fund including a liquidity stress test;
  • the composition of the assets of the fund in terms of liquidity is assessed based on a multi-factor scoring approach. The resulting liquidity profile is also scrutinised in a stress test. 

Asset side

The asset liquidity is assessed through a scoring approach using multiple criteria (e.g. position side, traded volume, rating, maturity, stale prices etc). The overall score per asset is aggregated and translated into liquidity buckets. The report details the individual score for each asset and each factor that is used to assess liquidity. Our system also allows the risk manager to override a liquidity score based on asset specific information. The process is followed through an audit trail. 

Liability side

Besides a graphical presentation of the net redemptions patterns their descriptive statistics are calculated at several time horizons. Furthermore, they are analysed and used in stress testing. 

Our liquidity indicators contrast the liquidity breakdown of the asset side obtained through our multi-factor scoring approach with the results of the liability analysis at matching time horizons to screen for potential liquidity shortfalls. this is conducted in multiple combinations or normal and stressed conditions of both sides.

Arkus counterparty report will show the exposures to counterparties resulting from deposits and/or PnL originating from OTC instruments. Gross and net exposures will be shown by counterparty.

Arkus concentration report enables you to monitor the concentrations in the portfolio. The report will present portfolio concentrations across several dimensions (e.g. ratings, issuers, duration, sector etc.) as well as other important information in that respect (e.g. stale prices, exposure by ultimate parents etc.).

This report will provide a breakdown of the currency exposures of your portfolios distinguishing between exposures stemming from direct investments, derivatives and FX derivatives. It will also show those instruments that have a hedging effect.

Arkus can provide bespoke investment stress tests and report on their outcome. We use a series of stress tests on risks associated with each investment position of the fund and their overall effect on the funds portfolio, including shock tests to an exhaustive list of explanatory variables. A number of standard scenarios combining various shocks are also available. These will enable managers to access and monitor the extreme risks of the fund under normal and exceptional market conditions. Customisable stress tests are available on demand. 

Customised scenarios can be defined in order to simulated: 

  • Yield curve shocks, 
  • Currency pair shocks
  • Equity and indices shocks
  • Equity and indices volatility shifts. 

In Accordance and in keeping to the respective European legal documents and guideline requirements, Arkus can provide the following: 

  • Daily monitoring of Pre-Trade investment restrictions (Such “Pre-Trade” service being dependent on the implementation of an on-going data-flow with investment managers and an agreed minimum data quality standard format)
  • Daily monitoring of any unofficial and/or internal investment restrictions. 
  • Support on the interpretation of legal investment restrictions and on the understanding and classification of investment breaches. 

The on-going monitoring of investment restrictions will be performed through our proprietary online-platform “RiskRadar” with breach summaries provided via the investment restrictions report, email or directly accessed via RiskRadar. Clients can also have the chance the customise the list of exchanges which should be considered as eligible for every single portfolio. In addition, Arkus enables the customisation of individual investment restrictions “warning” limits to facilitate the monitoring. These can be easily monitored by dedicated users through RiskRadar under the “investment restrictions set-up” tab.

In the investment decision process, it is important to take into account both return and risk in order to analyse which investment is more attractive than others. Portfolio performance measurements are useful in the evaluation of active portfolio management which can also help in the investment decision process by ranking the performance of funds, according to their investment strategies and risk and desirability.

The risk-adjusted ratios which are available on Risk Radar are the most common measures used in the portfolio performance analysis.

The following performance metrics are currently available on Risk Radar:

  • Ex-post Tracking Error
  • Sharpe Ratio
  • Sortino Ratio
  • Treynor Ratio
  • Jensen’s Alpha
  • Information Ratio (using Jensen Alpha)
  • Information Ratio (using Standard Alpha)

RiskRadar, our interactive Risk monitoring platform, will provide a numerical and visual breakdown of a portfolio’s performance contributions across various categories. The return contribution of price effects, foreign exchange, income distribution and fees are captured and can be analysed along multiple factors. The performance of each asset can also be traced along with its exposures.

Customisable widgets and various drop downs will enable the user to customize and interact with their portfolio’s performance characteristics. A great easy to use feature that enables its user to fully comprehend their overall funds’ performance.

Arkus will produce the SRRI reports that can be used to feed the KIID/KID  documents required for the respective fund structures. The calculation of the SRRI will be performed by Arkus on an automated basis through its in-house system RiskRadar™. This is done accounting for incomplete time-series and/or changes to the representative Asset-Mix in case of insufficient time series

A dedicated report will be issued on a weekly basis with the latest SRRI calculated which includes an assessment if it lies in the current range. In case of deviations the number of weeks outside the bucket are automatically displayed and migrations are flagged. For the flagging the migration rules as per ESMA 10-673 considering the fund types specified.

  • Market funds
  • Absolute return funds
  • Total return funds
  • Structured funds

Arkus can provide fund managers with a host of bespoke/ specific reporting solutions to their particular requirements.

To conveniently monitor the Cover Rules, we have developed a guideline at portfolio level which is based on the Coverage Ratio. Any warning or breaching limit can be specified when the Guideline is set up depending on the particularities of the portfolio. The warning level will act as a safeguard. If it is surpassed, it invites the addressee to verify the nature of the breach and potentially take corrective actions.

Fund Level Reports

This is a data extraction of the risk related fields that are needed for the Annex IV reporting, such as CS 01, DV01, VaR, Leverage, Stress Testing etc. Arkus will provide a report that is designed to feed into the Annex IV filing.

In addition to internal reporting on risk to senior management and the board covered as part of the Permanent Risk Function, regulators have put a strong emphasis on the aggregated reporting of risks with a view to enhance transparency. In that context, Arkus can support you to prepare the risk-related sections of the AIFMD Annex IV regulatory reporting for AIFs by leveraging on the data gathered for Step 1 above.

You may use this internally to prepare your regulatory reporting or send it to the service provider selected to outsource your regulatory reporting under Annex IV of AIFMD. Arkus will also provide the relevant extractions for the regular risk reporting as required by the CSSF.

This report presents the high-level reporting lists for all portfolios in the fund, the headline risk numbers, and the overall result of the guidelines check in one line per portfolio.

To enable you to easily monitor your defined set of key risk indicators Arkus provides an Exception Report which shows the results of a check on the KRIs on all the portfolios for a fund.

Arkus maintains an extensive library of guidelines on KRIs (VaR, Leverage, Concentrations, Liquidity ratios etc.) which is continuously enlarged. You can specify a warning and a breach level, and the result will be indicated through a traffic light system.

Arkus can develop a bespoke data file that can be used to feed an internal data warehouse.

Alternative Investment Funds (AIFs) - Iliquid Assets (PERE)

Alternative Assets (Private Equity & Real Estate)

Due to the complex nature of PERE, the standard risk models are not applicable. Arkus has deployed an approach addressing the characteristics of this particular asset class. It starts with structured analysis of realised and projected cash-flows and exposure. For these type of AIFs, it is important to understand the underlying assets as risk needs to be monitored across the whole investment value chain. In addition to its methodology, systems and processes, Arkus completes its AIFMD service offering by working with PERE Experts.  

Arkus´ risk monitoring and reporting services aim to measure and monitor all material risks relevant to the fund, based on its unique risk profile. For real estate AIFs, we will customize our PERE risk monitoring tool in order to tailor it to your specific non-tradable asset’s investment strategies. This tool will seek to gather all relevant information, provide a comprehensive overview of the limits status and current risk profile of the AIF managed as well as highlight anomalies such as limit breaches or critical situations. 

The following categories of risk will be monitored, when applicable: 

  • Market Risk

    Equity Multiple, IRR (Calculated through cash flow simulation procedure), IRR at Risk, Stress Testing.

  • Concentration Risk

    Concentration Report

  • Counterparty Risk

    Counterparty Report

  • Leverage

    Calculated under both the gross and commitment methodology

  • Investment Restrictions

    Investment Restrictions reporting

  • Liquidity Risk

    Liquidity Report

  • Credit Risk

  • Operational Risks

Industry News & Events

VOLATILITY RISK NEWSLETTER - AUGUST EDITION

07th August 2020 – Newsletter

ESMA RECOMMENDATION ON LIQUIDITY RISK FOR FUNDS

26th February 2020  – News

TRANSLATED GUIDELINES UNDER ARTICLE 37 MMF

15th March January – News

Monthly Market Volatility risk newsletter

August Edition available here

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Contact

Business Development

Sergio Lopera

sergio.lopera@arkus-fs.com

+ 44 (0) 207 264 2027

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General Enquiry

info@arkus-fs.com

T : + 352 42 26 11 111

F : + 352 42 26 399

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