Complex systems can be understood only by looking at them from different points of view. For example, financial markets are complex by definition and, as such, require a multi-faceted approach when it comes to analysis and monitoring.
Our risk management department combines solid quantitative expertise with investment experience, flexible operation using the latest methods and an ability to handle a variety of risk factors, working with traditional and alternative investments. We apply a combination of conventional portfolio analyses (composition, performance, value at risk, stress test, sensitivity) and more evolved analyses (factor analysis, Private Market cash flow simulation).
Right from the outside, risk management has been an integral part of Fondaco’s strategic processes, starting with investment processes. Solid governance ensures that our risk management department takes both an independent and proactive stance concerning investment matters and that its presence is felt in the investment committees.
Besides supporting the company’s internal analytical activity, our risk management department is responsible for drawing up periodic reports for our investors and providing prompt, clear, precise information on portfolios. We have abandoned the “traditional” concept of monthly reporting with a real-time interactive portrayal of events on a platform developed in-house, the Fondaco Reporting Portal.
The financial world is complex and it evolves constantly. Research is an essential driver of innovation and development to promptly identify market trends, structural changes in asset management, and areas of investment.
Here at Fondaco, we have created a cross-company centre of excellence to draw on the company’s various skills, from risk management to traditional management, from alternative management to trading. Thanks to the interaction between different but complementary visions and experiences, the Market Insights and Analytics team can produce periodic analyses on long-term issues relating to the asset management industry, such as the applications of artificial intelligence, also focusing on medium-term economic issues, such as the impact of the US elections on the financial markets and strategies and models.
The organisation of the research team and its distinctive flexibility means that it is always able to intervene promptly with regard to emerging new themes.
The team’s research is used to support the discussions of the Fondaco Group committees. Our investors have access to this research, along with webinars and explanatory calls with our specialists.
We see the construction of asset allocation as a way to help investors pursue their goals. However, experience teaches us that there is no “perfect” portfolio but one best suited to each institution’s needs, limits and governance.
This means that the result is not simply an allocation between different asset classes but also includes the definition of a process, the identification of the tools to be used and the choice of the risk parameters to be monitored until the investment decisions are made.
Identifying and constructing the target portfolio is just the first step, followed by the continuous monitoring of the allocation and sharing all pertinent analyses and any changes resulting from market dynamics or changing investor needs.
The process is highly flexible: it is possible to involve the institution itself or any advisors, include the selection of managers and combine traditional and alternative asset classes, also integrating them with instruments already held by the investor.
All the tools and expertise we have developed in our business are placed at the disposal of investors, from direct management of specific asset classes and multi-assets to risk control, counterparty selection and the fulfilment of orders, along with the creation of dedicated investment vehicles.
Multi-asset management is our core business. We began in 2004 and have continued developing a robust, structured and effective process.
We take an evolved approach, aiming for a truly dynamic combination of market factors, currency diversification and active management to exploit the value-creation opportunities offered by traditional asset classes.
The starting point is a flexible top-down allocation process that can adapt to different conditions, integrating the prospective analysis of macroeconomic scenarios with the most advanced machine learning models.
The next step consists of choosing appropriate and complementary investment instruments, ranging from direct management to third-party strategies, active or passive solutions, quantitative or discretionary, with the aim of building an efficient portfolio structure in terms of risk, return and cost.
Quality, prompt execution and continuous monitoring of the portfolio exploiting the expertise of our dedicated trading desk, are crucial.
The risk management department is fully integrated into the investment process and is focused on limiting volatility and short-term losses, which are essential to achieve sustainable results.
Lastly, the management team expresses all our different skills, operating with disciplined governance, within a framework of clear and shared limits and goals.
With over 15 years of experience managing global private market and hedge fund portfolios, Fondaco unites a successful platform with proven investment expertise.
Close but Global
The Fondaco team is based in Italy but also has a global background. It has been investing on behalf of long-standing Italian investors for 15 years, combining an international approach with cultural and linguistic proximity.
Over all these years of operation, Fondaco has succeeded in establishing solid relationships with some of the best managers in the world. Fondaco has always made an immense effort to establish direct partnerships with its managers, who see the company as an experienced, stable investor with whom to develop a long-term relationship.
Investment Process and Risk Management
Extensive due diligence is carried out concerning every investment opportunity, both from an operational and legal perspective. The role of the risk management department is central to every decision. In addition, the company provides up-to-date reporting on portfolio performance and risk.
The platform for alternative investments offers an efficient and reliable institutional format. In addition, Fondaco offers favourable liquidity terms.
ACTIVE INVESTMENTS AND TRADING
Stock volatility monetization programmes are one of our main activities. We have over seven years of experience actively managing shareholdings on behalf of institutional clients and have developed a systematic, structured and effective investment process.
These are primarily instruments suitable for increasing profitability on an annual basis through collecting premiums from the sale of options. It is possible to trade even if the market price of the share is lower than the carrying cost, as these are systematic programmes in which the shares held are restructured even before they mature. It is only possible to exercise the options traded in cash.
This kind of instrument can be used to implement different strategies to protect the portfolio, consolidate positive performances and complete the investment’s partial or complete sale. Moreover, the use of both derivative and cash financial instruments takes place in a context consistent with regulatory requirements, exploiting both the independence of the asset management company and its ability to compete with the leading market counterparties.
The Management Team and Risk Management Team operate independently, with a dedicated Risk Policy which aims to reduce the risk of the options sold being exercised at maturity and to ensure that there is always sufficient liquidity to cover any restructuring and repurchase of options previously sold.
Fondaco has been directly managing investments in bonds since 2004.
It handles two types of management: active benchmark management and discretionary absolute return management.
Active benchmark management is based on a quantitative modelling approach, optimizing a portfolio concerning the benchmark, with yield-enhancing techniques and the possibility to include active positions, within a strict framework of ex-ante control of risk (TEV) and transaction costs. Systematic management consists in replicating an index with a smaller number of shares while maintaining its characteristics at both aggregate and sector levels. Optimizing captive funds begins with the construction of restrictions using the stratified sampling methodology, which allows the portfolio to be broken down into suitable dimensions, to determine a concentrated share portfolio with the same exposure to the identified sectors and the risk factors associated with them. Fondaco can draw on its expertise in building optimization models, originally developed on a sophisticated analytical tool dedicated to bond management, the YieldBook platform owned by FTSE Russell.
Absolute return discretionary management starts with the definition of the return and risk targets and the portfolio’s investable universe.
The investment strategies (trading and carry strategies) and the operational and risk limits are then defined to optimally balance the risk factors typical of a bond portfolio (interest rate risk, credit risk, currency risk).
Once the framework has been defined, management choices are made, paying the utmost flexibility and attention to the macro dynamics of the asset classes, to the relative value between securities and the credit fundamentals of the issuers, in a strict context of risk management and sharing of choices within the restricted investment committees.