Delivering real-time risk that reflects the speed of the market
The markets have experienced significant volatility in the last few months. China's decision to devalue its currency, the collapse of commodity prices and the uncertainty caused by global quantitative easing have all caused significant disruption to financial markets. In August, all three major equity indices in the US suffered their biggest losses since 2011.
Hedge funds need to manage volatility and to do that effectively requires a risk management system that is real-time, user driven and flexible enough to provide the instant analysis that is required.
This is precisely what TFG Financial Systems provide. Offered as a cloud-based solution, TFG delivers the only true real-time solution for multi-asset class portfolios. The core infrastructure was built to be massively scalable using low cost technology and delivers the performance that today's volatile markets demand. VaR, NAV and stress/scenario reporting is delivered real-time tick by tick as markets are moving.
"With increasing volatility, it has become more important to see the instantaneous impact of any price moves in the portfolio's assets. Portfolio managers can no longer afford to wait until the end of the day to see what the impact of a Federal Reserve rate hike has had, for example," says Martin Toyer (pictured), Chief Technology Officer at TFG.
As well as being a real-time position and risk management system, TFG provides full middle/back office capabilities which were designed to maximise the level of automation and minimise headcount costs. This covers full STP capabilities for trade workflows, cash management, reconciliation, collateral management, historical reporting and real‑time shadow NAV. It is a true front to back portfolio and risk management platform.
Risk management has grown in importance and complexity since the 2008 financial crash. Having a detailed understanding of where market risk is generated requires accurate/reconciled positions, clean market data and user flexibility in terms of pricing models, curve construction and scenario generation. Toyer notes that because TFG is focused on all these aspects it ensures that its clients have the tools they need to navigate the most volatile markets.
"There's very little on the buy-side in terms of proprietary valuations. We therefore made the decision to build our own libraries to maximise performance, lower cost and provide the flexibility our clients demand. Our analytics give users complete control over which positions use which curves for valuation. This customisation, combined with the speed of valuation and user driven real-time reporting, is unique to TFG," explains Toyer.
There are two main elements to TFG's software. The primary aspect provides real-time VaR, stress testing and P&L attribution at the strategy level, the underlying asset level and the position level. The secondary aspect, says Toyer, allows users to capture daily risk/p&l data, which can then be stored in a data warehouse to run historical analyses for portfolio back-testing and regulatory reporting.
Asset coverage includes both cash and derivative products for FX, fixed income, equity, interest rates, commodities, credit and inflation.