Riskdata, the provider of risk management applications to the worldwide investment marketplace, announced today that it has launched AlphaRisk Screener, a new screening tool that will form part of the upgraded FOFiX 3.0, its flagship risk management system for investors in external funds.
The new screening tool will enable investors to rank and select external funds not only by their risk appetite, but to match precise portfolio “risk style” targets, jointly with performance objectives.
Institutional investors, in particular pension funds and endowments whose requirements for low beta investments (hedge funds and 130/30 funds) have risen considerably, have an need for “risk style” and alpha-based screening. It can help with queries such as finding out which manager can be selected to minimize the credit risk of a portfolio, while maintaining the overall expected performance; or if a preferred fund is closed, which other managers offer a similar risk/return profile.
“It is now more inadequate than ever for investors to rely only on risk-return based screening for their fund screening process – simply answering the question ‘which manager has the best Sharpe Ratio in a strategy’ is not sufficient,” says Olivier Le Marois, CEO of Riskdata. “In particular this is because the static classification of fund ‘strategies’ is often a poor reflector of actual risk drivers. Selection is perhaps the single most important element of the investment process, and with AlphaRisk Screener in place, the enhanced version of FOFiX now provides the most advanced tool to support it from beginning to end, from manager selection monitoring through portfolio construction to risk control and reporting.”
Riskdata claims its AlphaRisk Screener allows investors to: select funds and eliminate a specific unwanted risk type, while still maximising expected performance; select funds that display a targeted non-linearity, thereby boosting a specific performance driver, with minimal risks; support portfolio rebalancing decisions to evolving risk/return profile targets; select a market instrument to be added to a fund portfolio to create hedges; visualise changes in risk style over time across the entire investment universe or by peer groups.
Numerous recent best practice surveys have highlighted the increased demand of institutional investors for advanced screening and selection tools that reflect multiple risk types, together with alpha identification. Portfolio optimisation is now no longer the focus, but risk styles, sources of risk/returns, stress testing and detailed inclusion of risk in reporting have become top priorities for investors.
“Risk cannot be reduced to a single number any more than medicine can be reduced to a thermometer reading,” says Ingmar Adlerberg, chairman and product manager of Riskdata. Although some apparently similar products exist, Adlerberg adds, “Most other similar products have screening capabilities based on basic statistics, but none of them allow you to do a portfolio construction oriented screening, searching for specific risk types with outperformance indicators. Potential clients are now comparing and contrasting AlphaRisk Screener with these other services and its strengths are being quickly grasped.”
With AlphaRisk Tracker in place, FOFiX 3.0 now supports the entire investment process, from manager selection and monitoring to portfolio construction and risk control and reporting. The company says it is capable of dealing with mixed portfolios, including sophisticated hedge-fund strategies, traditional long-only mutual funds, and instruments such as derivatives.