Alif Asset Management

Risk Management Framework in Mutual Fund

Risk Management Framework

Risk Management in banking implies ‘Asset Liability Management' whereas risk management in Mutual Fund for most part entails ‘Asset Only Management'. Alif Assets Management takes risk as an integrated approach to managing a portfolio of risks. We refer to a framework with processes and suitable tools. A fully implemented risk management framework optimize returns relative to the risk of each Mutual Fund.

There are two basic types of risks to address as an AMC . a) Investment Risk and b)Operational risk. Our comprehensive risk management process addresses both these types with risk measures built-in to our IAM System.

Risk Management Process

Our risk management process involves Risk identification and assessment, Risk measurement and reporting and risk mitigation. In the chart above two pillars of mutual fund have been identified . The first pillar is an Investments risk arises due to portfolio management process and other piller is an operational risk arising out of back office and investment operations of asset management company. Our approach on developing clarity of thoughts on the concept is regular examination of old Evan-Archer diagram of Risk Diversification. Establishing right mix of securities and portfolio weights is also important for managing risk. In portfolio management process, our risk measured tools gauges changes in portfolio value corresponding to different market conditions. Risk management focuses on continuous identification and controlling of portfolio risk . Operational risk entails all operational activities undertaken to run Asset Management Company. Key risks arising out of these from process, system, regulatory, outsourced activities etc. Our robust risk management framework includes control of transaction, portfolio transfers, pre and post trade compliance, cash and stock reconciliation , monitoring custodians activities, NAV control, system audit and validation and Liquidity risk ( process for managing redemption requirements, cash policy at fund level and deployment of funds.) We also apply Quantitative approach for operational risk requiring historical data VAR etc. We tale operational risk measurement process a systemic approach to identify and correct instantly.