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Yapı Kredi Asset Management Annual Report 2012
24
Risk Management and Compliance
Thanks to its solid infrastructure, effective risk mapping systems and strong control mechanisms,
YKAM is well prepared to adopt expected regulatory changes in the period ahead.
Portfolio Performance and Benchmark Reporting
The most of the mandates managed by YKAM have a benchmark with
incorporated risk budgets and risk metrics except for capital guaranteed
funds, which have considerably low levels of counterparty risk monitored
through collateral management. Risk budgets and risk metrics involve
many contemporary tools including but not limited to the use of historical
Value at Risk (VaR), Monte Carlo simulated VaR, marginal VaR, relative VaR,
liquidity measures, counterparty risk, concentration risk, expected shortfall,
maximum drawdown, volatility, tracking error and information ratio.
YKAM benefits from its extensive information technology to apply
best-in-class risk management practices ensured by the in-house portal
system and the third party developed RiskTürk market risk analysis
software. YKAM also performs peer analyses (Rasyonet) and performance
attribution (RiskTürk) to pinpoint peer-relative performance and
decompose the performance itself. Analyses and reports are shared with
the upper management on a daily basis while warnings and alerts are
reported on an intraday frequency. In addition, a separate Risk Committee
on a weekly basis chaired by the CEO is held for a broader view and
assessment of risk related issues with asset managers and CIO.
Peer Group Performance Reporting
YKAM follows benchmark-relative returns for funds and discretionary
portfolio composites within the context of peer group performance
reporting. Tracking error and information ratio figures are also calculated
and monitored daily. Regarding absolute return-driven strategies and
hedge fund, YKAM uses RiskTürk’s advanced Value-at-Risk management.
Investment results versus peers are also continually reviewed.
Monitoring of Risk Indicators and Realized Portfolio Risk
The purpose of risk management is to identify and quantify risks while
mitigating and managing them within the overall risk appetite criteria
of the company as well as providing ongoing monitoring of such risks.
YKAM maps investment risks relevant to mandates and makes necessary
implementations in its risk framework to cover such mapped risks in
a thorough and timely manner. The Company has an integrated risk
framework that enables it to monitor most risks systematically. As such,
all risk indicators (tracking error, information ratio, stop-loss, VaR, etc) are
displayed online real-time through portal and RiskTürk. Such real time
monitoring enables early warnings when approaching relevant limits,
the cautionary elevations of which are communicated immediately,
if necessary.
Monitoring of Investment Committee Decisions and Management
Principles
The dedicated unit focused on risk management determines the
framework of controls and oversight required to ensure that risk exposures
remain within acceptable levels, including investment performance risk,
which is the risk that portfolios fail to meet their investment objectives.
Controlling Stop Loss Limits and Leverage
YKAM risk framework also covers stop loss limits for each managed fund
and provides real time alerts and early warnings to portfolio managers.
As a result, the number of breaches is low and primarily passive in nature.
Stop-loss limits are activated if the daily gap between an asset, asset class,
fund or discretionary portfolio composite performance and its benchmark
falls below a threshold level. The risk framework includes parametric
maximum drawdown limits for absolute return products. The procedures,
rules and actions involving such situations are clearly depicted in the risk
management directive and its annexes where the threshold values on
asset classes and mandates are identified. The revision of these appendices
is only made with the express approval of the General Manager and
updated values are immediately posted on YKAM Investment Portal.
YKAM does not use any leverage in its portfolios except for the hedge
fund. The hedge fund has a conservative risk profile, allowing a maximum
leverage of 40% of net asset value. Excluding the hedge fund, leverage is a
non-issue in YKAM operations.
Regulatory and Legal Compliance Checks
Through pre-trade and post-trade checks, compliance with investment
restrictions is continuously monitored. Regulatory or client-imposed
restrictions and controls on investment constraints at the portfolio level
are automatically monitored through the investment portal on a pre-trade
basis. Portal provides position keeping, trade simulation and a wealth of
portfolio surveillance facilities to assist portfolio managers in their decision-
making processes. All funds are spontaneously valued by the portal
everyday to ensure enhanced transparency of risk positions and efficiency
in compliance controls. For discretionary management mandates,
compliance is facilitated through the GTP system. Within the context of
post-trade checks, all transactions undergo a compliance check in end-of-
day processing after being reconciled with fund accounting. If breaches
occur, both active and passive, these are automatically recorded and a daily
report is brought to the management’s attention.
Thanks to its solid infrastructure, effective risk mapping systems and strong
control mechanisms, YKAM is well prepared to adopt expected regulatory
changes in the period ahead