2. Simple general overview – everything is just an Asset Class and an associated cash flow.
Portfolio is just an aggregation of such.
Portfolio risk is the interaction of such assets, flows with the defined risk factors in absolute or relative
space.
Approach is twofold
Mandate limits Relationships
Internally set limits Adding Value
Soft and hard limits Investment Process
Risk Reports & MI Challenge
Risk control process Transparency
Escalation Client Facing
Risk Control and Governance Risk Integration
GHMF
Risk Management
3. Past, Present & Future
Ex Post (Historical), Current Holdings and Ex Ante (Forecast based on current holdings).
Important to have transparency on holdings and benchmark, peers and not to over indulge in
measures.
Ex Post - Examples
Volatility, Information Ratio, Tracking Error
Alpha, Sortino Ratio, Value at Risk (VaR)
Beta, Tracking Error Factor Models
Sharpe Ratio Performance Scenario’s
Ex Ante - Examples
GHMF
Risk Management
4. Who are the consumers and what is the understanding of the current risk reports?
Have we identified the correct risks, measures, limit management, Governance?
How can users access the reports?
What's the data and IT environment
Is risk integrated within investment process? Are we analysing portfolio risk with portfolio managers
and encouraging optimal construction? – what's the challenge process
What's the risk signature of the mandate over time? Single funds/Families of funds
Performance and performance attribution?
Are we liaising with vendors and development to enhance risk platforms or developing internally?
What's the use, understanding of and control of derivatives?
Always question the risk model and process.
GHMF
Risk Management considerations examples;
5. Real Estate Risk Management has its own distinct personality, needs some flexibility in approach
and standard portfolio analytics may not always apply.
Key is to integrate Risk Management into the Real Estate Investment process – a challenge.
Last years have been difficult for real estate market – also more pressure (notably from clients) for
qualitative and quantitative performance and risk information.
NAV Based Measures Vs. Position based Measures & reports.
Specific challenges
• Liquidity Risk
• Stress and Scenario Analysis
• Consolidated reporting, Fund level.
• Limit and limit management process
• Adding Value
• Structure GHMF
Risk Management Real Estate
6. Interest Rate
Property Type
Market Liquidity
Currency
Supply/ Demand
Purchasing
Area Accessibility
Inflation
Investment returns
Location
Counterparty
Vacancy rate
Unexpired Lease term
Macro Conditions
Sectors
Benchmark
Macro Factors
Depreciation
Regulation
Rental Growth
Income Growth
Lack of data
Tenants
Hedging
GHMF
Fund Managers
Risk Factors Real Estate examples;
Geography
Leverage
7. €3,840
Ex post NAV
Measures
Expense Ratio
Loan to value
(LTV)
Interest Coverage
Ratios
Stress/Simulations
Factor Sensitivity
Models
Liquidity Measures
Performance
Attribution
VaR/Expected
Shortfall
Return
Lease Expiry profile
Probability Default
Covenant
Fund Level
Cash levels
GHMF
Loan to Cost
(LTC)
Risk Analytics Real Estate examples;
8. Sensitivity and scenario analysis on the defined Risk factors.
Changes in Interest rates, Changes in Tenant defaults etc.- what effect do these have? Break the problem
down into pieces.
Cash flow projections under differing scenarios and probabilities.
This can become model technical.
Key is to define how to run the scenario in practice.
GHMF
Focus areas – Stress, Sensitivity, Scenario
9. Funding requirements, Asset level considerations. Cash level Management.
Key element is cash flow modelling & monitoring not just present but potential. Similar framework to
Scenario – also look to net Cash Flows.
Defining Measures and reporting.
Peers Prices, Index considerations. Limit systems. Funding Diversification. Gearing levels.
Examples, Liquidity Coverage ratio, Net Stable funding Ratio. Liquidity gap analysis.
Adding a liquidity factor to a VaR measure?
Board approved liquidity Policy?
GHMF
Focus areas – Liquidity
10. Interest Rate
Liquidity Stress Report example – define effect /flows under each
scenario
Unsecured
Funding
FX
Covenants
Segment
Volatility
Secured Funding Rental Income
Defined Liquidity
Ratios
Credit Rating
Capital Value
Market
Conditions
GHMF
11. How to do it? – A Measured Approach
Project plan.
Resource/ Budget.
Review Performance and Performance Attribution possibilities.
Regulatory requirements now and going forward.
Consolidated reporting.
Economies of scale with current systems.
Examine quick wins, examples Fund Reports ( monthly) – . VaR/Expected Shortfall , Volatility from
NAVs, Cash levels, LTVs, Performance, extend Ex post measures.
Take ownership.
GHMF
12. Data and IT.
Systems and measures.
Management buy in.
Project planning.
Budget.
Regulation – e.g. AIFMD.
Clients.
GHMF
Key Areas
