RISK MANAGEMENT

Any investment firm needs powerful risk management solutions to cope with the turbulent financial markets, enabling it, to process large data bases, complex algorithms and managing a multitude of different assets. Creating performance for a fund manager implies automatically running a perfectly functional Risk Management application that are issuing the right warning signals.

Market Risk and Transparency

Assessing market risk is a new paradigm of our era investment’s challenges. Every day new risk variables are entering the financial markets and managing them may become a burdensome activity. On the other side, transparency is defining the shape of market and investment risk. The better, transparency is assessed and quantified, than the better is the shape of risk being defined by a higher granularity and it is becoming easier to manage and create portfolio performance on a row.

General financial instrument

Besides Market Risk and Transparency Assessment, tools necessary to evaluate the passive and variable segment of performance given by costs, fees and other expenses are subsequently computing accordingly MIFID2 directive:

• Performance costs (w/o entry – exit fees)
• Portfolio / Product costs, broker commission and payment for research
• Client’s PRIIPS requirements
• Costs, charges and disclosure ex-ante and ex post trade

Application module as optimization trading fees and expenses might be implemented once the asset allocation is done in order to preserve a targeted performance objective correlated to small trading fees and other auditable expenses (commissions, taxes, fees and more).

Member States are given powers to ban or restrict products where there are threats to investor protection, integrity of the market or financial stability. A formal banning power is likely to be used very sparingly, but regulators are likely to become more interventionist around product development, governance and oversight around the marketing and distribution of products.

Market Risk Monitoring and Contingency Plans

Financial regulators are using surveillance tools and procedures for anomalies that might occur in capital markets. These tools are usually based on regular market conditions where extreme or unattended risk is not taken into account as a collection of market volatility scenarios.

FincoNet developed advanced, algorithm based, market risk monitoring instruments analyzing in real time market conditions specially when extreme risk may occur. Alert signals are issued in extreme risk scenarios and contingency plans are instantly proposed to mitigate the unexpected market movements following the external, unattended high risk impact factors.

A contingency plan is sometimes referred to as "Plan B," even if they are several proposed “Plan B” scenarios because it can be also used as an alternative for action if expected results fail to materialize.

Investor Risk Protection

Provision of investment services and protection of client interests is highly necessary to be developed for Investment Banks, Investment Managers and Private Banking. Investor Risk Protection is one of the major areas where a lot of legal action are generated throughout an investment process is terminated. Taking measures to assure that all procedures regarding the portfolio risk transparency, fees structure and investment protection limits are well disclosed and implemented, fund managers are complaining with all MIFID2 regulation requirements at once.

Client Risk Profile – Dynamic Quantitative Assessment

One of the most important part of Investor Risk Protection is creation of Client Risk Profile. Usually this process is done once in a while to keep the portfolio risk adjusted with investor potential risk appetite. Client Risk Profile is a dynamic pattern taking in account the age, market condition, personal risk factors and much more both qualitative and quantitative factors. Our approach is taking in consideration all external factors that may impact the investor risk profile and its targets. The Risk Profile application is realized on one side as a smart questionnaire periodically submitted to investors and on the other side as a self-adjusting module based on several risk profiles that are generating sample risk profiles with warning signals proposing the portfolio targets adjusted:

• Client classification: Client information and Target market than Information about Client as Investor type, its ability to bear losses, Risk tolerance and Client’s objectives and needs
• Client assessments: Treating Customer Fairly, Conflict of Interest Management and Suitability and Appropriateness

Investor Risk: Robo – Advisory Services

Advisory services in conjunction to investor risk profile is a new application helping both investor and fund manager to pair as exactly as possible the dynamic of financial markets and subsequently client’s investment portfolio to the variability of client’s risk profile. A comprehensive report and adjustment signals are issued in order to obtain the best decision that may optimize the decision process reflected in portfolio risk and performance.

Portfolio Risk Assessment

Assessing risk for investment portfolios is a very complex task nowadays, mostly because of market increasing volatility and a totally new volatility pattern end let’s say four years ago. New risk assessment tools are developed to assess portfolios on both performance and risk management. These new developed assessment tools are using advanced causal stochastic algorithms based on Shannon’s Information Theory than Euler’s Gamma and Beta functions, where solutions to support the decision process are implemented only if more than 98% of the calculated outcome is within the targeted risk / performance objectives.

Quantitative and Qualitative Portfolio Risk Assessment

As the bulky part of risk assessment is calculated using mostly traditional quantitative analytics, the qualitative assessment are taking in account hard to convert, high risk impact factors as the politic, demographic, geographic, social and economic factors.

Portfolio Risk: Robo - Advisory services

As well as the Robo – Advisory services are used for Client’s – Portfolio Risk pairing, Portfolio advisory services uses technology that enable risk adjusting algorithms, based on market behavioral pattern as support information for the decision makers during the investment process.

Organizational Risk Assessment

A new approach of Risk propagation within corporate’s organization with high impact on financial performance and quality decision that support the investment process is developed to assess the organizational risk.

Advanced implementation using risk clustering, signal propagation, entropy theory, organizational risk assessment, joint effect of performance risk and performance propagation based on recently issued studies and research are employed to permanently monitor and adjust the organizational risk.

Our applications are fully assessing the risk – performance ratio at the level of any organization and the management, the impact, the quality and the effectiveness of information flow between departments and management then adjusting dynamically the decision information support, enhancing the performance output.

Decision Risk Assessment

Within any organization the quality of decision and its underlaying and quantified risk makes possible or not to reach the targeted performance objectives. Any adjustment of the decision risk has a tremendous impact on the proposed performance objectives. Consequently, the assessment of decision process is focused specially on the right conversion of the external qualitative and quantitative impact factors that may affect both the decision process quality and its risk attributes.

Implementing a highly elaborate set of conversion algorithms and procedures, FincoNet can supply the decision maker with the necessary tools that make the decision process a quite common task based on real market event signals, translated in indicators, easy to be interpreted and adjusted while prioritizing creation of performance and risk mitigation.