Risk management is a fundamental element to investment strategies and is used to identify potential contributors to downside in an effort to minimize the impact of the unexpected.
The risk management process is the most critical step in developing a robust fund strategy, because inevitably, the level of risk drives the level of leverage and return. Smart investment strategies hinge on risk levels that are consistent, measurable, and justified.
Over the last 20 years, quantitative risk processes have become increasingly sophisticated. Complex covariance matrices in conjunction with risk factor models have become the predominant style of choice to analyze security and portfolio performance. Firms are constantly looking to integrate a wider array of factors and data for risk attribution and modeling, and with the growing prevalence of artificial intelligence, the risk management landscape is evolving.