Risk Management | Asset Management

Investment Risk

Investment risk covers a broad range of issues facing client portfolios and investments. Through the use of proprietary risk models and third party tools, we analyze portfolio sensitivity to many different investment risk factors to understand how they drive risk and return in our portfolios. We estimate the performance of our portfolios in various scenarios, both historical periods of realized stress and hypothetical future stresses. We look at the potential impact to our clients in absolute terms and also relative to their specific investment policy objectives.

Operational Risk

Many teams within Commonfund are involved in the monitoring and mitigation of operational risk. We think of operational risk as the potential for losses stemming from human error or the failure of processes and systems. This review of people, processes and systems takes place across all internal areas and is also performed on our managers, vendors and other third party partners.

Credit and Counterparty Risk

Firms that operate in the financial markets face the risk that the market participants they do business with may not perform as promised. In mitigating this risk, Commonfund carefully monitors the creditworthiness of our counterparties, including the review of their financial condition, credit ratings, and market credit indicators such as credit default swap spreads and equity price volatility. Commonfund maintains tight control around collateral management and other methods of exposure reduction.

Liquidity Risk

The ability of our clients to meet their cash needs is paramount and a daily focus at Commonfund. Understanding an institution’s ability and willingness to accept illiquidity is an essential step in building an appropriate investment policy statement. With that foundation in mind we look at liquidity at each level of the investment portfolio construction process. We evaluate how illiquidity could affect our clients at the strategy level, in client and manager portfolios, and ultimately at the individual security level.

Regulatory Risk

Commonfund operates within a rapidly changing regulatory and compliance environment where news of enforcement actions appear seemingly every day. Compliance, like risk management generally, is embedded into the culture at Commonfund, led by our experienced legal and compliance teams. Outside of Commonfund we seek to ensure that all of our managers, vendors and third party partners have regulatory and compliance people, processes and procedures that are as robust as our own.

Reputational Risk

Some risks that institutions face may not result in direct financial consequences, but rather expose the institution to negative effects on their reputation. Commonfund is always cognizant of the impact our decisions may make on the reputations of our clients and our firm. Reputational harm can arise from negative press or damage to the perception of an institution among the public or within the institution’s operating community.

The true and ultimate risk our clients face is the potential inability to continue pursuing their missions. Commonfund takes all of the above risks into consideration when helping clients devise the appropriate investment policies and long-term strategies that will ensure their continued ability to execute in an uncertain future.