Buy-Side Technology Awards 2017: Best Buy-Side Risk Management Initiative Over the Last 12 Months—RiskVal

Over the last 12 months, RiskVal has enhanced its real-time risk and P&L portfolio management system, RiskVal Portfolio, to address current risk management challenges faced by buy-side clients. The company, led by founder and CEO Jordan Hu, took a couple of months to construct the initial factor-based value at risk (VaR) offering, and a few more to calibrate and back-test the market result. Apart from regulatory and compliance requirements, an acute challenge faced by buy-side clients is consistently managing intraday and end-of-day portfolio P&L and risk. While most have back-office systems to manage those functions, Hu says what is lacking is true intraday P&L and risk management. “This is particularly true for global macro funds, as they have complex portfolios covering various market sectors and regions,” he says. “We construct real-time intraday P&L and risk [profiles] by leveraging Bloomberg for most of our real-time market data, as well as utilizing our in-house model.”

RiskVal approaches traditional VaR calculations uniquely: Rather than relying on a single VaR number, it incorporates front-office portfolio strategies and sub-strategies into the portfolio hierarchy. This allows both the front and middle offices to drill-down into P&L and VaR at the strategy level. It also applies P&L factors to VaR calculations, which allows it to explain each position’s daily P&L according to various market factors. Portfolio managers can use this information to track the performance of each trading strategy and improve the portfolio risk-reward ratio. “More importantly, the time-series of historical factor-based P&L enables truly transparent and auditable VaR calculations, avoiding conventional black-box VaR management,” Hu says. 

Looking toward 2018 and beyond, RiskVal will expand its fixed-income product coverage to include munis, corporate bonds and mortgage-backed securities. It also plans on expanding coverage of non-fixed-income products such as foreign exchange, equities and commodities, to become a full-service solution, while simultaneously moving to 100 percent FIX protocol for STP communication, enabling it to provide a single interface to interact with other financial systems. 

RiskVal is keen to work with traders to develop the next round of analytical tools tied to execution, as the fixed-income market moves further toward electronic trading. Hu believes that execution combined with relative-value analytics can provide traders with an edge in the market.