Institutional investors such as pension funds, investment managers and endowments along with corporate investors are increasingly appreciating the importance of professionally managing their investment mandates within specific volatility limits.
Increasing regulatory requirements along with ever more demanding financial commitments necessitate not just expert investment management but also a more accurate monitoring of volatility ceilings. This is a relatively recent additional feature to the traditional flexibility and bespoke requirements that institutional and corporate investors look for.
At BOV Asset Management Limited, we pride ourselves with providing our institutional clients with a concentrated focus on risk and volatility management in our approach to generate investment returns.
Our core methodology utilises a risk-budget approach to a dynamic asset allocation. In this respect, rather than following a static and pre-determined asset class exposure, we modify exposures to different asset classes according to the risk and return trade-off being offered by the respective market segment.
This enhances the possibility to achieve the long-term objectives of our institutional clients as their portfolios are constantly managed by taking into consideration the natural evolution of risk and volatility in financial markets. Risk is by definition volatile, thus different asset classes and investment vehicles exhibit different risk levels along changing business cycles. A static asset allocation would expose an institutional client to a higher element of volatility in the fair value of the portfolio should risk on a static asset class suddenly increase. This could have a direct impact on the profitability of the company at year end.
We also noted that the tendency of exhibiting low tolerance for risk in such mandates is making risk management in these mandates ever more important. Traditionally, low risk tolerance and regulatory requirements have pushed such investors into low credit risk fixed income securities. These securities, however tend to offer an element on interest rate risk as the value of such securities tends to have a negative impact in periods of increasing interest rates unless this risk is adequately managed.
A risk-ceiling blended with a dynamic asset allocation would allow an institutional investor to constantly pursue an element of investment return without jeopardising the overall portfolio’s tolerance for risk.
Steve Ellul is Head BOV Asset Management at BOV Asset Management Limited.
The writer and the Company have obtained the information contained in this document from sources they believe to be reliable but they have not independently verified the information contained herein and therefore its accuracy cannot be guaranteed. The writer and the Company make no guarantees, representations or warranties and accept no responsibility or liability as to the accuracy or completeness of the information contained in this document. They have no obligation to update, modify or amend this article or to otherwise notify a reader thereof in the event that any matter stated therein, or any opinion, projection, forecast or estimate set for the herein changes or subsequently becomes inaccurate. Furthermore, past performance is not necessarily indicative of future results. BOV Asset Management Limited is licensed to conduct investment services in Malta by the Malta Financial Services Authority. Issued by BOV Asset Management Limited, registered address 58, Triq San Żakkarija, Il-Belt Valletta, VLT 1130, Malta. Tel: 2122 7311, Fax: 2275 5661, E-mail: firstname.lastname@example.org, Website: www.bovassetmanagement.com. Source: BOV Asset Management Limited.