Risk management
Sees everything. Acts when it counts.
Risk management at Brummer is not a separate function. It is embedded in how the portfolio is run. A central portfolio management team has full visibility across every position and every strategy in real time. Their role is to track the conviction behind each strategy, allocate capital with precision, and intervene when needed without disrupting what is working. The model below outlines the formal risk management structure, risk management framework, and the types of risk that apply to Brummer Multi-Strategy.
Risk management
Risk management is an integrated and important part of the management of the fund. The investment manager and its Board of Directors have identified various types of risk and define guidelines for how these should be managed. The Board of the investment manager regularly adopts a risk management plan, which provides more detailed guidance on how the investment manager should identify, measure and control these risks. The Board of Directors also sets limits for the risks that the portfolio managers are allowed to take in their asset management activities.
Responsibility for risk management in the fund is held by the investment manager, ensuring that appropriate and effective procedures, methods and mechanisms exist for managing various risks. A robust risk management process comprises risk measurement, risk control and final risk management. Under service agreements, daily risk measurement and risk control are performed by units outside the investment manager that form part of B & P Fund Services AB, a wholly owned subsidiary of Brummer & Partners. B & P Fund Services AB is a securities company regulated by Finansinspektionen.
The strategies in which Brummer Multi-Strategy invests make extensive use of various derivative and futures strategies. The aim is to strengthen risk control of the strategies’ assets, alter their risk profiles and take advantage of expected price movements in the market to improve their long-term return. The strategies also make wide use of short-selling, i.e. selling securities that they do not own but has at their disposal. The strategies can also use borrowing to achieve a controlled increase in the leverage and the return on the their assets.
In addition to results and key figures, the strategies' monthly reports also provide information on risk measurements, including the standard deviation, downside risk, Sharpe ratio, maximum and minimum Value-at-Risk and the share of hard-to-value assets, if applicable.
A three-layered risk management framework
| 1. Portfolio construction | 2. Strategy-level risk management | 3. Independent risk oversight | |
|---|---|---|---|
Objective |
Construct a diversified portfolio of complementary strategies that generates returns while preserving capital across market envrionments |
Ensure each sub-strategy operates within clearly defined mandates and risk limits, managed towards pre-defined targets |
Maintain low market dependence and resilience at aggregate level through rigorous, independent analysis |
Key parameters |
Low cross-correlation, Low net market exposure, Idiosyncratic return drivers |
Net and gross exposure, Factor risks and VaR, Liquidity and concentration |
Multi-dimensional exposure analysis, Acro stress scenario testing, Loss target: ~3% under broad stress scenarios |
Monitoring & process |
Top-down portfolio guidelines derived from overall investment objectives, Active allocation across strategies |
Bottom-up real-time monitoring of each strategy by BMS portfolio management team, Close dialogue with portfolio managers and independent risk control function, Dynamic risk adjustment as opportunity set evolves |
Independent risk oversight outsourced to B&P Fund Services (BFS), Continuous monitoring of aggregate exposures, Additional layer of control and transparency |
Risk considerations
All fund management activities are subject to risk in the sense that deposited money can fall in value. The fund’s investment strategy means that the fund’s risk level could be high. But a higher risk can also create a potential for a higher return. Brummer Multi-Strategy's risk profile is the product of various types of risk, which in varying degrees and at different times can affect the overall risk. The investment manager strives to limit the fund’s actual risk level through the selection of and the allocation to the investment strategies of Brummer Multi-Strategy. Any assessment of the fund or decision to invest must be based on a careful assessment of the risks associated with the fund. The following is a brief summary of various types of risks that mainly arise in the strategies in which Brummer Multi-Strategy invests. The summary does not claim to present an exhaustive list of risks that may affect the management of the fund.
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that the whole market for a particular asset class can go up or down,
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that borrowing or investments in various derivatives can make the fund more sensitive to changes in the market due to leverage,
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risks associated with concentrations of assets or markets, i.e. that a fund investing in a smaller number of securities and in a smaller number of geographic markets has a higher risk,
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changes in the relative performance of different securities,
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that the value of an investment can be affected by changes in exchange rates.
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large margin collateral requirements for over-the-counter (OTC) trades could force the fund to liquidate positions at unfavourable times,
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that it proves impossible to liquidate a position in time and at a reasonable price.
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that an issuer or counterparty defaults on its payments,
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dependence on clearing functions, custodians and other service providers.
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risks associated with the investment manager’s operational activities, including dependence on individual portfolio managers, IT systems, procedures, etc,
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other systemic risks and changes in legislation that change the fund management company’s operating environment,
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model-related risks that are due to simplifications, assumptions and misinterpretations in valuation and risk management models.
- risks associated with services provided by third-party suppliers, including B & P Fund Services AB.
- an environmental, social or corporate governance event or circumstance which, if it were to occur, would have an actual or potential adverse impact on the value of the investment. Sustainability risks are typically divided into the categories environmental issues, social issues, business ethics and corporate governance.