Risk management is embedded in the PrideRock investment process.
Max 3% 1-day VaR is based on a 1-year history at a 95% confidence level on an ongoing basis. It is mapped within the PrideRock trading algorithms and is double-checked via Bloomberg’s MARS and PORT risk management and portfolio management systems.
Maximum risk exposures for all trading strategies are well-defined as core components of portfolio construction and are detailed in the chart below.
Portfolio level P/L is monitored in real-time. Liquidity risk is managed via position monitoring both at the portfolio and firm level. But the fund only trades in liquid assets and actively avoids illiquid and short-tailed risk. As such, liquidity at the portfolio level is monitored and managed as a core component of the investment process and some 90-95% of the portfolio can be liquidated within two days.
PrideRock does not hedge currency exposure.
Implied volatility and sharp increases of market volatility are closely monitored as a core component of the fund’s modelling and position weightings are reduced, often automatically as a consequence of modelling, if and when vol increases in markets.
PrideRock employs rigorous drawdown parameters as well – which are captured within the portfolio models and actively monitored by the PrideRock principals, not least Jun Yuan, the CIO. Soft and hard loss mitigation triggers are arithmetically employed, mandating management portfolio review at -4% peak-to-trough and position squaring at -8% peak-to-trough.
In terms of operational and counterparty risk, PrideRock fund operations team pursues and clarifies all trade breaks with relevant counterparties and traders. Daily reconciliation is performed on cash and positions with the fund’s Prime Brokers and the Fund Administrator. For OTC trades, the Prime Broker is required to send confirmation for matching and trade confirmation purposes.