Value at Risk (VaR) – Absolute or Relative 

Arkus will compute the portfolio VaR and conditional VaR over various holding periods (e.g. one day or one month) and at the desired confidence interval, perform VaR back-testing and provide incremental VaR figures at single position level. The risk metrics are calculated via a statistical factor model that uses a full revaluation approach within a Monte Carlo simulation framework. Linear volatility and its decomposition are also available. Leverage calculated according to the Sum of Notional approach will be provided in conjunction with the VaR results.

If required, Arkus will make suggestions for asset mappings or setups. An asset mapping summary report as well as a summary of the proxied assets (if any) is provided each time a risk report is delivered. All asset-level risk metrics are accessible and available in RiskRadar™.

In terms of structured products, Arkus has an extensive library of pricing functions for derivative products which can be deployed for risk modelling if sufficient underlying data is available. We also have the possibility to model non-linear derivatives on composite assets by including multiple underlying instruments. This, for example, would enable to capture optionality on bespoke indices or baskets of assets. In case none of the setups or the currently available pricing functions is able to provide an adequate fit, Arkus can code specific newly-created pricing functions for bespoke exotic 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 provides a dedicated liquidity report developed upon a solid and transparent methodology that allows to screen for potential liquidity risks stemming from both the asset and the liability side of the monitored portfolio, either in current market conditions or under stressed scenarios and at different time horizons.

Asset side

Asset-level time to liquidation and cost of liquidation are assessed using multiple criteria (e.g. position size, traded volumes, maturity, stale prices, bid-ask spreads etc.) and the entire portfolio is allocated across eight liquidity classes. Our system allows the risk manager to overwrite the assignment of a certain position to a liquidity class based on asset-specific information. This process is followed through with an audit trail.

 Liability side

On the liability side, historical net redemptions patterns and investor concentration are analysed and used in stress testing. Our liquidity indicators contrast the liquidity breakdown of the asset side with the results of the liability analysis at matching time horizons in order to screen for potential liquidity shortfalls. This is done in multiple combinations of current and stressed market 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 will present the portfolio concentrations across several dimensions (e.g. asset type, ratings, issuers, duration, sector etc.). RiskRadar™ allows the user to dynamically choose on what basis concentration widgets are displayed i.e. gross, net or long-short.

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

Arkus maintains an extensive library of stress scenarios applicable to your portfolio which include both univariate stresses (hypothetical) and multivariate stresses (hypothetical and historical). Position-level contribution to each scenario are accessible and downloadable from RiskRadar™. Furthermore, Arkus can also build customised stress tests by defining absolute, relative or volatility shifts for yield curves, currency pairs, equities and indices.

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 service being dependent on the implementation of an ongoing data-flow with investment managers and an agreed minimum data quality standard format);
• Daily monitoring of any unofficial and/or internal investment restriction;
• Support on the interpretation of legal investment restrictions and on the understanding and classification of investment breaches. 

The ongoing monitoring of investment restrictions will be performed through our proprietary online platform, RiskRadar™, with breach summaries directly accessible online or provided through the investment restrictions report by email. Clients have the possibility to define the list of exchanges which should be considered as eligible for every single portfolio. In addition, Arkus enables the customisation of individual warning limits in order to facilitate the monitoring of the investment restrictions.

Portfolio performance measurements are useful in the evaluation of active portfolio management and can help the investment decision process by ranking the performance of funds according to their investment strategies and risk appetite.

The risk-adjusted performance ratios available on Risk Radar are the most common and widely used measures in portfolio performance analysis. These include:

• Ex-post Tracking Error,
• Sharpe Ratio,
• Sortino Ratio,
• Treynor Ratio,
• Jensen’s Alpha,
• Information Ratio,
• M².

Subject to the implementation of an ongoing data-flow, RiskRadar™ can also provide a numerical and visual breakdown of a portfolio’s realized performance across various categories. The return contribution of price effects, Fx, 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 exposure.

Customisable widgets and drop-down filtering will enable users to break down their portfolio’s performance and analyse its characteristics, an easy-to-use feature that enables a full comprehension of the overall funds’ performance.

Arkus will produce SRRI reports that can be used to feed the KIID/KID documents. The calculation of the SRRI will be performed on an automated basis through our in-house system RiskRadar™.

On a weekly basis Arkus will issue a dedicated report with the details of the latest calculated SRRI and the tracing of its movements. In case of deviations from the official SRRI class, the number of weeks outside such class are automatically displayed and migrations are flagged. The calculations, the flagging and the migrations are all executed in accordance to the rules defined in the ESMA 10-673 depending on each specific fund type:

• Market fund;
• Absolute return fund;
• Total return fund;
• Structured fund.

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 portfolio-level guideline 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 surpassed, it invites the addressee to verify the nature of the breach and potentially take corrective actions.