Providing Robust risk management services to alternative investment fund structures whilst helping to adhere to the AIFMD regulatory regime.
An interactive online platform that manages and monitors portfolio risk for a variety of UCITS/AIF fund structures and investment strategies.
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.
Document the independence of the risk management function when:
Formalize and document the risk management framework:
Report on risk management:
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-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.
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:
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:
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:
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.
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 within a fund or a company, the headline risk numbers and the overall result of the guidelines check in one line per portfolio.
In order to enable its clients to easy monitor the set of key risk indicators they have defined, Arkus provides an Exception Report which shows the results of the checks performed on all the KRIs applied to all the portfolios included in a fund or a company.
Arkus maintains an extensive library of guidelines and KRIs (based on VaR, leverage, concentrations, liquidity ratios etc.) which is constantly expanded. Warning and breach levels can be defined and the result will be indicated according to a traffic light system.
Arkus can develop a bespoke data file that can be used to feed an internal data warehouse.
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:
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