BUILDING RESILIENCE TOWARDS RISK

Many risk measurement approaches failed during the financial crisis and were unable to prevent world-wide assets to erode by around 20%. Risk management often measured the stand-alone risk factors precisely, but failed to forecast the dependency effects of risk factors in a portfolio. The asset management industry had to learn the hard way that the linear correlation-metric is just a poor device for modelling dependency, especially if markets collapse with domino effects.

Together with our clients we identify risk vulnerabilities, develop strategies to increase risk resilience and implement those strategies across front to back office departments.

During the crisis Maravon developed T2R - Time-to-Ruin, which is a risk metric that incorporates market liquidity-based dependency effects. Through back-testing and historic crisis-stress testing we can verify that T2R-managed portfolios possess a much higher resilience against adverse market moves than portfolios that were controlled by traditional risk metrics such as VaR, LPMs or Volatility. We would like to encourage our clients to additionally implement T2R for investment management control.