The City Fund Management (cfm) business model has been developed based on one simple philosophy:
“Quality returns are created from the controlled management of risk”
In other words, given that the size of investment returns are directly commensurate with the amount of risk taken, then the better the control of the risk the higher the quality of the returns.
cfm has pursued this strategy for well over ten years and now refers to the process as the “cfm risk management hub”. We outline here what the process is and how it works with risk management as the driver of investment returns. All investors are in fact buying buckets of risk and the “cfm risk management hub” merely separates these buckets and manages them independently of one another, subsequently merging them together to produce a consolidated portfolio return.
cfm has total transparency from its traders with intra-day access to orders and fills. This is essential if timely and accurate risk management processes are to take place. The cfm risk management approach is based on controlling risk through the allocations to strategies in the portfolio and fine tuning, where and if necessary. To be successful data feeds must be reliable as must be operational structures.
cfm Risk Management Portfolio Design Structure
The cfm risk management hub effectively operates as a risk management platform assessing risk at individual strategy level as well as on a consolidated portfolio basis. This process takes into account risk offsets across strategies in order to optimize risk adjusted returns.
Key risks are tracked both intra-day and over variable time series. Essentially the risk hub dictates portfolio profiling in order to optimize returns. It is essential to not only track individual strategy performance but also style, market conditions, daily trading ranges, market volatility, momentum shifts, scenario risk exposure, and most importantly changes in correlation within the portfolio. The whole concept is based on proactive portfolio management and the avoidance of shocks. The example on the right illustrates how this is applied to our Constellation Fund. Risk/Reward ratios can be adjusted to meet individual clients return requirements without increasing the core relative risk profile.
90% Core Investment Portfolio
• This represents the core of the investor funds held in risk free or near risk free instruments.
• These funds can be invested in risk free government bonds.
• These funds can form the basis of a guaranteed note, guaranteeing the return of the total capital (100%) after a given period of time.
• These funds can be managed in a cash management segregated programme whereby a small amount of additional (credit and duration) risk is assumed in top class interbank products or corporate bonds, thus delivering additional alpha.
5% Trading Capital “Buffer” Portfolio
• The “Buffer” provides a protection overlay against the “Core Investment Portfolio”.
• Leveraged trading risks are not assumed in the “Buffer”.
• Money market risks can be assumed to provide additional cash management enhancements to returns at low risk as they can in the Core Investment Portfolio”
• The “Buffer” can be increased in percentage terms over time by allocating a share of profits to the “Buffer” portfolio thus enabling an expansion of risk in the “Trading Capital Portfolio”; or simply be increased to provide additional protection.
• In short the “Buffer” can be used to increase protection (reduce risk) or allow an increase in potential returns by allowing the risk to increase in line with the additional protection.
5% Trading Capital (margin) Portfolio
• This portion of the portfolio represents the high risk element by virtue of allocation to managers who are trading leveraged products across a number of markets and instruments.
• Such instruments are leveraged and require margin to be lodged with the associated exchange through a clearer.
• As exchange traded instruments the risk exposures are totally transparent and marked to market on a daily basis.
• High liquidity means that such exposures can be liquidated “instantly”, thus enabling robust “stop-loss” risk management.
• High risk also means high returns on this element thus providing the “kicker” on the total portfolio. Robust risk control, risk measurement, and risk management are essential across the total portfolio but especially so with respect to this portion.
PDF Download :::::::: RISK MANAGEMENT HUB
“Quality returns are created from the controlled management of risk”
In other words, given that the size of investment returns are directly commensurate with the amount of risk taken, then the better the control of the risk the higher the quality of the returns.
cfm has pursued this strategy for well over ten years and now refers to the process as the “cfm risk management hub”. We outline here what the process is and how it works with risk management as the driver of investment returns. All investors are in fact buying buckets of risk and the “cfm risk management hub” merely separates these buckets and manages them independently of one another, subsequently merging them together to produce a consolidated portfolio return.
cfm has total transparency from its traders with intra-day access to orders and fills. This is essential if timely and accurate risk management processes are to take place. The cfm risk management approach is based on controlling risk through the allocations to strategies in the portfolio and fine tuning, where and if necessary. To be successful data feeds must be reliable as must be operational structures.
cfm Risk Management Portfolio Design Structure
The cfm risk management hub effectively operates as a risk management platform assessing risk at individual strategy level as well as on a consolidated portfolio basis. This process takes into account risk offsets across strategies in order to optimize risk adjusted returns.
Key risks are tracked both intra-day and over variable time series. Essentially the risk hub dictates portfolio profiling in order to optimize returns. It is essential to not only track individual strategy performance but also style, market conditions, daily trading ranges, market volatility, momentum shifts, scenario risk exposure, and most importantly changes in correlation within the portfolio. The whole concept is based on proactive portfolio management and the avoidance of shocks. The example on the right illustrates how this is applied to our Constellation Fund. Risk/Reward ratios can be adjusted to meet individual clients return requirements without increasing the core relative risk profile.
90% Core Investment Portfolio
• This represents the core of the investor funds held in risk free or near risk free instruments.
• These funds can be invested in risk free government bonds.
• These funds can form the basis of a guaranteed note, guaranteeing the return of the total capital (100%) after a given period of time.
• These funds can be managed in a cash management segregated programme whereby a small amount of additional (credit and duration) risk is assumed in top class interbank products or corporate bonds, thus delivering additional alpha.
5% Trading Capital “Buffer” Portfolio
• The “Buffer” provides a protection overlay against the “Core Investment Portfolio”.
• Leveraged trading risks are not assumed in the “Buffer”.
• Money market risks can be assumed to provide additional cash management enhancements to returns at low risk as they can in the Core Investment Portfolio”
• The “Buffer” can be increased in percentage terms over time by allocating a share of profits to the “Buffer” portfolio thus enabling an expansion of risk in the “Trading Capital Portfolio”; or simply be increased to provide additional protection.
• In short the “Buffer” can be used to increase protection (reduce risk) or allow an increase in potential returns by allowing the risk to increase in line with the additional protection.
5% Trading Capital (margin) Portfolio
• This portion of the portfolio represents the high risk element by virtue of allocation to managers who are trading leveraged products across a number of markets and instruments.
• Such instruments are leveraged and require margin to be lodged with the associated exchange through a clearer.
• As exchange traded instruments the risk exposures are totally transparent and marked to market on a daily basis.
• High liquidity means that such exposures can be liquidated “instantly”, thus enabling robust “stop-loss” risk management.
• High risk also means high returns on this element thus providing the “kicker” on the total portfolio. Robust risk control, risk measurement, and risk management are essential across the total portfolio but especially so with respect to this portion.
PDF Download :::::::: RISK MANAGEMENT HUB