[Header] [About us] [Risk Management] Newton's Cradle

Risk oversight

Risk oversight lies at the heart of the investment process. It is inseparable from the search for performance. We pay close attention to identifying, quantifying and analysing the risks attached to our investment process. The Risk Oversight team is responsible for the day-to-day monitoring of portfolios’ risk profile.

A team independent of the investment management team


 
The risk oversight team reports directly to the Deputy Managing Director Carmignac Gestion, Christophe Peronin, and is completely independent of the investment management team.

The Risk Committee, which is the main decision-making body for risk policy, is chaired by Eric Helderlé, Managing Director Carmignac Gestion Luxembourg, who holds a veto over investment strategy at board level.

There are five people in the team, led by Patrick Temfack, who has more than 10 years of experience in this field and is a member of the French Asset Management Association’s Risk Management Committee.
 
 

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[Divider] [About us] [Risk Oversight] Measuring tool

One system, two approaches

In the course of its work, the investment risk oversight team relies on two complementary forms of analysis wherever possible:

  • a qualitative approach based on common sense, empirical observation or expert opinion,
  • a quantitative approach using mathematical forecasting models.

Risk oversight also involves using leading applications/software programs:

  • Bloomberg Compliance Manager

  • MSCI Risk Managers (Riskmetrics)

What are the primary risks and the main indicators used to measure them?


  • Market risk

    Risk of loss due to fluctuations in the portfolio’s market value

    - Equity risk (equity exposure),
    - Currency risk (currency exposure),
    - Interest rate risk (modified duration),
    - Credit risk (issuer or issue spread),
    - Regional risk (emerging market exposure)
    - Volatility, Value at Risk, Shortfall, Stress tests (mathematical forecasts)

  • Credit risk

    Risk of an issuer defaulting and failing to repay its debt

    - Credit rating
    - CDS spread and/or change in share price if listed
    - Debt instrument’s structure

  • Counterparty risk

    Risk of a counterparty defaulting and being unable to meet its obligations

    - Legal status
    - Credit rating
    - CDS spread and/or change in share price if listed
    - Counterparty news watch

  • Investment strategy non-compliance risk

    Risk of failure to respect investment constraints

    - Number of breaches observed
    - Frequency of breaches observed
    - Nature of breaches

  • Liquidity risk

    Risk of temporary or permanent inability to sell one or more assets held in a portfolio

    - Minimum size
    - Holding ratio
    - Free float percentage
    - Time required to sell assets
    - Number and weighting of the least liquid positions
    - Portfolio liquidity profile in normal and distressed markets

One system, three levels of constraint


 
Throughout the day, but especially at the start and at the end of the day before the markets close in Europe, the risk oversight team monitors compliance with the different investment constraints set for each fund, and provides investment management teams with a detailed report. These constraints generally take one of three forms:  
 

  • Regulatory constraints :
    Laid down by the regulator in the fund’s home country (AMF in France, CSSF in Luxembourg, ICB in Ireland and FCA in the UK), these apply to all asset management market participants.

  • Statutory constraints :
    These follow the description of the investment strategy, and therefore investment rules, set out in the fund prospectus and/or any other relevant documentation.

  • Internal constraints :
    Determined by Carmignac’s Risk Committee, these are more restrictive internal rules aimed at reducing risks identified as being significant when taking macroeconomic conditions into account, even if they would be permissible from a regulatory and statutory point of view. These rules may be reviewed and if necessary adjusted at the Risk Committee’s discretion.  

Real-time risk management, oversight monitoring


 
The risk oversight team has real-time access to the investment management team’s portfolios. This arrangement allows it to be more responsive and even proactive by immediately identifying risks of non-compliance with the investment mandate. An escalation procedure can be followed to immediately bring such situations to a fund manager’s attention and quickly report them to senior management if they persist or reoccur.

Beyond the investment management team, which is responsible for preliminary risk management, there are three levels of risk oversight:
 

Level one

  • The risk oversight team monitors compliance with constraints on a daily basis
  • The risk oversight team reviews the oversight system (application settings, procedures) on a regular basis  

Level two

  • The internal control and compliance team monitors the proper application of the level one control system

Level three

  • Risk oversight and internal compliance teams also use external investment rule monitoring services to independently assess the effectiveness of the oversight system

 

[Divider] [About us] [Risk Oversight] Gears

Risk management, an integral part of the investment process


 
The risk oversight team supervises the investment management team’s work on investment strategy compliance.

  • Investment selection

    A portfolio manager wishing to invest in certain securities may request the opinion of the risk oversight team to check the impact of this choice on the portfolio’s risk profile.

  • Risk management

    Using its monitoring resources, the risk oversight team reassesses changes in the portfolio’s real risk profile to determine its suitability for the risk profile described in the prospectus.

  • Investment decision

    The portfolio manager reaches a decision taking into account the risk oversight team’s recommendations.

  • Risk oversight

    Every day, the risk oversight team checks that the portfolio respects all regulatory, statutory and internal constraints.

Risk Committee


 
The Risk Committee’s role is to analyse risks associated with the investment process for each portfolio. Each month, it reviews the main risk indicators and positions requiring special attention.

The Committee also studies all new product requests to approve or reject them. Members of the management team and investment committee receive a list of recommendations after this meeting.  
 
With eight permanent members, the Risk Committee is led by Eric Helderlé, Managing Director Carmignac Gestion Luxembourg, and sits in the presence of:  
 

  • Maxime Carmignac, Managing Director Carmignac UK
  • Christophe Peronin, Deputy Managing Director Carmignac Gestion
  • Patrick Temfack, Head of Risk Management
  • Jean-Yves Lassaut, Conducting Officer in charge of the Risk Management Luxembourg
  • Tatiana Khorina, Head of Compliance
  • Guillaume Huteau, Front Office Risk Manager
  • Julien Chéron, Fund Manager

The teams of those in attendance (Risk Oversight, Compliance, Front Office Risk Management) also participate and present their analyses. One or more members of the investment management team may also be invited when an issue requires their presence.