Portfolio Management Risk Assessment

Typical hazards & measures

• Fraud risk — Implement comprehensive fraud detection systems and conduct regular audits to identify suspicious activities. Establish clear policies and procedures for reporting and addressing fraud, and provide training to employees on recognizing fraudulent behavior. Enforce strict access controls and monitor transactions for unusual patterns.
• Environmental risks — Incorporate environmental, social, and governance (ESG) criteria into investment analysis and decision-making processes. Assess the environmental impact of investments and engage with companies to promote sustainable practices. Diversify investments to mitigate exposure to industries with high environmental risks.
• Model risk — Validate and regularly back-test all financial models to ensure accuracy and reliability. Use multiple models and approaches to cross-verify results. Maintain a robust governance framework to oversee model development, implementation, and ongoing performance, addressing any discrepancies promptly.
• Interest rate risk — Monitor interest rate trends and economic indicators to anticipate changes. Adjust portfolio duration and exposure to fixed-income securities accordingly. Use interest rate derivatives to hedge against potential rate increases or decreases, aligning the portfolio’s sensitivity with market expectations.
• Performance risk — Establish clear performance benchmarks and regularly compare portfolio returns against these standards. Implement active monitoring and management to identify underperforming investments and take corrective actions. Utilize performance attribution analysis to understand drivers of returns and optimize investment strategies.