The Model

Step 1: Identification and assessment of specific risks

• Definition: This initial step consists in exhaustively identifying all the types of risk to which the portfolio is exposed, given its speculative strategy. This includes not only traditional market risks (equity volatility, interest rate fluctuations, currency fluctuations), but also risks specific to speculative investments (illiquidity, concentration, counterparty, leverage risk, regulatory risk, operational risk).
• Key actions :
  
  • In-depth analysis of portfolio positions and financial instruments used (funds, equities, currencies, cryptocurrencies, etc.).
  • Stress test scenarios to assess the impact of extreme events on the portfolio.
  • Fundamental and technical analysis to identify risks specific to the assets held.
  • Assessment of asset liquidity and financing risks.
  • Monitoring regulatory developments and compliance risks.
  • Identification of potential operational risks (systems, personnel, processes).
  • Use of quantitative and qualitative models to assess the probability of occurrence and potential impact of each identified risk.
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Step 2: Definition of Tolerance Limits and Risk Limits

• Definition: Once the risks have been identified and assessed, this crucial step involves establishing clear tolerance thresholds and specific risk limits for the portfolio and its various components. These thresholds reflect the risk appetite of the fund and its investors.
• Key actions :
  
  • Definition of exposure limits by asset type, geographic sector, issuer and strategy.
  • Setting limits on the use of leverage.
  • Setting maximum acceptable loss thresholds for the overall portfolio and for specific periods.
  • Setting concentration limits to avoid over-reliance on a single asset or strategy.
  • Definition of alert thresholds to trigger corrective action when risk levels approach established limits.
  • Clear communication of risk tolerances and limits to all stakeholders.
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Stage 3: Implementing risk mitigation strategies

• Definition: This stage involves putting in place concrete tools and strategies to reduce the probability and/or impact of identified risks that exceed tolerance thresholds.
• Key actions :
  
  • Portfolio diversification across asset classes, sectors and geographies.
  • Use of hedging instruments to mitigate market and currency risks.
  • Adjustment of asset allocation according to changing market conditions and risk levels.
  • Reduce leverage if necessary.
  • Implementation of liquidity management procedures to meet financing needs and potential redemptions.
  • Rigorous selection of counterparties and ongoing monitoring of their solvency.
  • Strengthening internal controls and operational processes.
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Step 4: Continuous monitoring and risk measurement

• Definition: Risk management is a dynamic process that requires constant monitoring and regular measurement of portfolio risk levels. This ensures that risks remain within acceptable limits and that mitigation strategies are effective.
• Key actions :
  
  • Daily monitoring of portfolio positions and key risk indicators (VaR, stress tests, liquidity ratios, etc.).
  • Regular reporting on risk exposure and performance against established limits.
  • Analysis of deviations from tolerance levels and identification of emerging risk factors.
  • Periodic stress tests and sensitivity analyses to assess the portfolio's resilience to adverse scenarios.
  • Regular review of risk models and their assumptions.
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Step 5: Review, Adaptation and Continuous Improvement of the Risk Management Framework

• Definition: The final stage involves periodically assessing the effectiveness of the risk management framework, adapting it to changes in the market, fund strategy and regulations, and identifying areas for improvement.
• Key actions :
  
  • Internal and/or external audits of risk management processes.
  • Regular review of risk management policies and procedures.
  • Analysis of incidents and losses to identify weaknesses in the framework and implement corrective measures.
  • Integration of best practices in risk management.
  • Ongoing training for GFIA members on aspects related to the management of
    risks.
  • Adaptation of the risk management framework in response to changes in the fund's investment strategy, market conditions and regulatory environment.