DMAP Risk Management Overlay
DMAP Risk Management Overlay is an innovative and highly flexible investment solution, customised to your specific risk budgets and investment restrictions providing a stable and reliable path to your long-term investment objectives.
We recognise the need for strategies that offer pension funds and institutional investors realistic and proven risk mitigation without giving up the upside potential of the strategic asset allocation (SAA). The DMAP Risk Management Overlay strategy is an active asset allocation strategy which seeks to meet or exceed the expected return over a full market cycle whilst mitigating the downside risks by up to 50% compared to the respective SAA. We aim to achieve this without affecting the alpha potential of the underlying managers.
During the time between SAA reviews, turbulent markets can cause considerable changes to funding level requirements and even breaches in risk budgets. Our solution offers the possibility of increased downside protection of up to 50% thereby increasing the potential to perform over the long-term.
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Philosophy
We believe that market inefficiencies can be exploited systematically to provide superior and consistent investment results for the benefit of our clients. These inefficiencies are caused by investor behaviour, such as herding and conservation bias which generate momentum, and by overconfidence which can cause momentum to become excessive.Our Multi Asset & Solutions team uses a well-researched and disciplined investment process that combines systematic analysis with fundamental knowledge and advanced risk management skills to construct portfolios that offer attractive risk-adjusted returns.
Our goal is to deliver a superior return profile over a full market cycle, by dynamically adjusting the strategic asset allocation (SAA) between updates. We aim to reduce downside risks in weak market phases and re-enter the market in strong phases. Our approach targets an asymmetric risk/return profile: minimising risk while maximising the potential for return.
With our proprietary investment approach Dynamic Multi Asset Plus (DMAP), we offer two kinds of investment solution: a fully integrated approach for multi asset portfolios or alternatively, risk and allocation overlay management for the entire (liquid) assets of an investor’s portfolio or pension scheme.
Process
The improved absolute return profile of our DMAP Risk Management Overlay strategy is the result of a proprietary, modular and active approach to asset allocation. Over time, the dynamic asset allocation process exhibits the characteristics of a low cost put option with effective tail risk protection. It is also well known that the normal distribution curve that supports option pricing theory can also underestimate downside tail risk.
Systematic and quantitative risk management is central to our process. We deploy a systematic risk-based approach to asset allocation according to your specifications.
Our strategy is researched intensively on an ongoing basis by our team of experienced investment professionals. We apply a quantitative basis to risk that increases the reliability of the expected return profile.
The strategy is predicated on the belief that systematic, quantitative risk management solutions are preferable and superior to purely judgemental processes. Similarly, we believe that a dynamic, synthetic replication of option profiles is more cost-effective than buying static options themselves, while additionally providing the possibility of outperformance versus an SAA.
Risk Management Overlay team
The Multi Asset Solutions team have managed active asset allocation and risk management mandates since 1996. With approximately 100 dedicated investment professionals, the team has a depth of proven quantitative modelling experience and extensive complementary skills including equity, fixed income, currency, commodities, tail risk management, dynamic asset allocation, fiduciary management and capital protection. The Risk Management Overlay team is comprised of around 10 specialists and is headed by Dr. Thomas Stephan and Dr. Henrik Büscher.
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