Risk Monitoring & Analysis
In today's market environment, there is a much increased demand from investors in hedge funds, as well as credit providers, or lenders to hedge funds, for both independent risk monitoring and increased transparency.
Custom House does not offer an in-house risk monitoring service, but it does offer the facility for the necessary data to be fed to independent consultant risk monitors and/or analysts and, when the consultant has analysed the fund's portfolio and determined the fund's risk profile, Custom House can distribute that report to the fund manager and/or selected investors, credit providers or lenders, as and when required.
Many hedge fund managers are reluctant to provide full transparency, because they do not wish to show the structure of their portofolio, nor disclose the full techniques and strategies they use, which could be descerned from reviewing the portfolio over a period of time.
"Opaque" or "Risk Transparency" is a form of limited transparency, which enables the fund manager to keep the specific details of the portfolio, as well as his strategy and other proprietary information, confidential, whilst still providing selected investors and credit providers/lenders with some more generalised disclosure and an independent verification of the risk profile of the fund. More detailed information can be provided subject to authorisation and password protection. For example, a fund could publish a limited risk analysis report, which could confirm the VAR of the Fund and also provide the VAR of particular sections of the fund portfolio - such as equities, fixed income, futures, deriviatives, etc. This we have described as "Opaque Transparency".
There is little doubt that the provision of some form of independent risk monitoring and risk analysis, within a fund, will be a 'marketing-plus' for many professional and institutional investors in the fund, as well as credit providers, or lenders to the fund. however, the selection of an independent risk monitor or analyst is a very personal decision based, not only on the subjective views of the fund manager, but also on the investment strategy, which will determine which style of risk monitoring is appropriate. Different consultants have different expertise and, indeed, some multi-strategy funds may benefit from more than just one risk monitoring consultant, each offering a different analytical product.
Custom House can work with a number of such consultants and arrange to provide the required data by direct feed. If a fund manager has an existing relationship with an independent consultant, Custom House can build an interface between its Paxus system and the consultants' system to enable efficient transfer of the data required. If the fund manager does not have any such relationship, Custom House can make introductions to one or more consultants so that the manager can hold its own 'beauty parade'.
There are a number of consultants with whom Custom House has relationships, including, inter alia, RiskMetrics, SunGard Reech and Kinetic.