Hedge Fund Risk Management Case Study: Hedge Fund Leverages JSP to Conduct Risk Management Analysis

Client’s Challenge

  • A large hedge fund had expanded its investment strategy to include a range of consumer and commercial loan products and thus needed to enhance its ongoing risk assessment of this growing portfolio.
  • The fund was an investor in both credit and interest rate risksensitive structured securities and by using a proprietary set of market models could trade opportunistically across a range of consumer and commercial structured securities in optimizing their exposure to these risks.

Our Solution

  • The models the hedge fund utilized in their investment selection process were not sufficiently comprehensive to cover the asset classes its management committee had identified and so found JSP’s broad coverage of consumer and commercial loan products and structured securities to be the right analytic solution for their investment strategy.
  • Five Bridges not only had developed JSP’s suite of statisticallybased models of credit and prepayment risk for a wide variety of products desired by the hedge fund but the flexibility of JSP to handle userdefined or preexisting JSP scenarios allowed the fund’s risk managers to understand the prospective performance of different asset classes under varying macroeconomic conditions.
  • Integration of the models with the Intex structuring tool enabled the hedge fund risk managers to update individual investments or the entire portfolio routinely and on an as needed basis.
  • The JSP reporting engine enabled the risk team to generate a wide variety of risk performance reports on the entire portfolio stratified along multiple dimensions of risk attribute and asset class, among other categories of interest.

Outcome

  • The hedge fund deployed JSP into its risk management process where it serves today as the analytical backbone to the fund’s regular assessment of portfolio risk.
  • Over time, the hedge fund has engaged FBA on utilizing JSP to optimize its portfolio based on assetlevel riskadjusted returns and other criteria.