Our risk modelling team provides integrated portfolio risk analysis for all our equity and bond funds. We see risk analysis as a central part of the institutional investment process, as we believe the data is integral to the portfolio construction process.
As a result, risk analysis data is considered particularly valuable by the F&C Board, who receive it in conjunction with our experienced fund management team.
We take care to communicate clearly with our institutional investors to ensure risk and reward profiles within our single and multi-asset structures are fully understood. Our risk modelling team also works closely with our highly successful retail fund managers in order to target robust and consistent performance.
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Risk control is an integral part of our investment process.
Risk on investment portfolios is fundamentally controlled in three ways by the investment manager under the supervision of the Portfolio Risk Committee:
- Sector and Stock - at the portfolio level, the investment manager utilises stock and sector weighting limits as risk control measures. We apply a range of disciplined constraints to client portfolios as shown above.
- Use of model portfolios and team approach - our team approach to the management of investment portfolios and the use of model portfolios provides a consistent investment process across accounts, and minimises dispersion of returns between managers.
- Monitoring using information systems - continuous monitoring of all client portfolios and active risk positions is a daily function at F&C. Integral to this function is an assessment of the suitability of active positions to the changing circumstances of the market.
Responsibility for monitoring a particular portfolio lies both with individual fund managers and the team as a whole, and each portfolio is assigned a primary and secondary fund manager. The fund manager is supported in the risk monitoring process by the Performance Measurement Team, Investment Risk team and the Mandate Checking team. At weekly strategy meetings Heads of Desk review portfolio dispersions versus benchmarks and changes in stance may be decided upon if there has been a significant shift in our views. It is the responsibility of the individual fund manager to carry out these changes as far as practical. Structured monthly account review meetings provide the forum for team-wide discussion of each client’s performance, and portfolios are reviewed by the Group Chief Investment Officer.
Three external F&C teams reporting to the Head of Operations provide independent monitoring of the portfolios:
- The Performance Measurement Team calculates portfolio returns and return attribution, delivering these on a monthly basis to the investment teams and senior management.
- The Investment Risk Team produces a comprehensive report on the active risk positions of all portfolios on a monthly basis. This is additional to the daily monitoring used by the portfolio constructors.
- The Mandate Checking Team is an independent team which uses e-Funds-system to ensure compliance with mandate restrictions.
In addition, four independent compliance bodies exercise oversight of portfolio management activities:
- The membership of the Group Risk Management Committee (GRMC) comprises senior representatives drawn from relevant parts of the Group and meets on a monthly basis. The committee is accountable for ensuring that risks related to the firm are identified, evaluated and mitigated as appropriate.
- The Portfolio Risk Committee is a sub Committee of the Group Risk Committee and is responsible for the application and monitoring of risk and control procedures at the operational and portfolio level.
- Membership of the Group Audit and Compliance Committee comprises of no less than four of the Board’s independent Non-executive Directors and is chaired by the senior independent Non-executive director.
- The Audit, Risks and Compliance department (ARC) functions as a combined audit, risk and compliance team reporting directly to the CEO.