Top Down approach

The establishment of the strategic allocation (choice of assets classes), then the tactical allocation (choice of markets).

We define first the asset classes in which we want to invest. Our choice is the broadest possible, as diversification is the first important step in risk management. We combine risk solutions across assets classes, indexes and geographical zones.

In order to define the weighting of each assets class we first combine the calculations of Minimum and Average variances on diverse outlooks in which we integrate certain risk components such as VaR, calculations of different type of volatilities, calculations of Draw-Down and analyses of extreme risk types through stress test scenarios.

Then we consider regulatory constraints.

Once this first strategic allocation is completed, we apply the same technology at the tactical allocation level, which means, defining the weight to give to each targeted market for each asset class.

Bottom Up risk approach

Uplifting the risk from the individual components into the global risk targeted by the fund. 

Each market is considered independently as an elementary unit with its own risk and return. The risk as a common denominator to any kind of asset permits us to compare all the markets whether there are stocks, bonds, commodities, real-estate, etc.

Our objective is to calibrate the risk level of each elementary unit through VaR, Volatility, Draw-Down, extreme risk calculations and to integrate stress test scenarios, which is combined in a global matrix whose determinant will be the calibration of the elementary unit's risk level :

At a high risk level, the market presents a dangerous configuration, so we cut investment and the funds allocated to this market is invested into money markets

At a low risk level, the market presents a potential return, so the fund invests the allocated share into this market.

This approach ensures the control of the ultimate risk of a capital loss.

The combination of investing into markets with high potential and avoiding investment in risky markets, permits raising the global return.

Once this stage is completed, each elementary unit's risk is recompiled at the strategic allocation level (the assets classes) to obtain the final calibration of the global return and risk of the fund.

The Top Down approach analyses is optimised on a biannual basis and The Bottom Up analyses are performed on a daily basis.

The constant search for the best balance between classes and sub-classes requires a significant experience and strong technical know-how to properly rotate the portfolio.