Risk management is where our research starts
Returns are uncertain; losses are what end mandates. We help institutions understand their own risk profile, measure the risks they actually hold, and research the strategies that keep those risks within limits.
Start with what the institution can bear
A risk profile turns an institution's objectives and obligations into explicit limits. We assess six dimensions and translate them into a risk budget and a written risk statement the investment committee can hold the portfolio to.
Objectives
Return requirement, time horizon and the benchmark or peer group the institution is judged against.
Liabilities and cash flows
Pension payments, redemptions, capital calls and other outflows the portfolio must meet.
Loss tolerance
The drawdown the institution can sustain before it is forced to change course, in money and in percentage terms.
Liquidity
How much of the portfolio must be saleable within a day, a month or a quarter, including in stressed markets.
Constraints
Regulatory limits, mandate rules, currency, leverage, concentration and ESG restrictions.
Governance
Who decides, how quickly, and what authority exists to rebalance or hedge without a committee meeting.
Measure risk several ways, because each measure has a blind spot
No single number captures portfolio risk. We use a set of measures together and are explicit about where each one can mislead.
| Measure | What it tells you | Where it can mislead |
|---|---|---|
| Volatility and tracking error | Typical size of moves, in absolute terms or against a benchmark | Treats upside and downside alike; understates tail events |
| Value at Risk (VaR) | Loss not expected to be exceeded on most days at a chosen confidence level | Says nothing about how bad losses get beyond that level |
| Expected shortfall (CVaR) | Average loss in the worst outcomes beyond VaR | Depends heavily on the history or model used |
| Maximum drawdown | Largest peak-to-trough fall and how long recovery took | Backward-looking; the next drawdown may be larger |
| Factor exposures | Sensitivity to growth, rates, inflation, credit, currency and style factors | Factor relationships shift between regimes |
| Concentration and correlation | Whether apparently different positions are really the same bet | Correlations tend to rise exactly when diversification is needed |
| Liquidity risk | Days needed to exit positions at normal and stressed volumes | Market depth can disappear in a crisis |
| Stress and scenario tests | Portfolio impact of historical crises and forward-looking shocks | Only as good as the scenarios chosen |
Controlling risk without giving up the return you want
Good risk management removes the risks an institution does not want to be paid for, and keeps the ones it does. These are the strategies we research and test for clients.
Risk budgets and position sizing
Set how much risk each asset, strategy or manager may use, and size positions to the budget rather than to conviction alone.
Diversification by risk factor
Spread exposure across economic drivers, not just asset class labels, so one shock cannot hit everything at once.
Hedging overlays
Research on currency, equity-beta and interest-rate overlays that reduce a specific unwanted risk while keeping the intended one.
Tail-risk protection
Options-based and asset-based approaches to protect against sharp, correlated sell-offs, with their running cost made explicit.
Drawdown controls
Pre-agreed rules for reducing exposure as losses build, so decisions under stress follow a plan instead of emotion.
Rebalancing discipline
Calendar and threshold rules that keep the portfolio close to its risk profile and harvest volatility.
Liquidity management
Buffers and liquidity tiers sized to the cash-flow needs identified in the risk profile, tested under stressed conditions.
Counterparty and operational risk
Review of exposure to brokers, custodians and derivative counterparties, and of process risks around execution.
Currency can add more risk than the assets themselves
For a foreign investor in Indian or other emerging-market assets, or an Indian institution investing abroad, currency moves can add to or wipe out the underlying return. We research how much currency risk to keep, how to hedge the rest, and what it costs.
| Approach | How it works | Trade-offs |
|---|---|---|
| Unhedged | Keep the full currency exposure as part of the investment | No hedging cost; full exposure to currency swings |
| Fully hedged | Hedge 100% of the exposure back to the base currency | Removes currency volatility; carry cost can be high for high-yield currencies such as the rupee |
| Strategic partial hedge | A fixed hedge ratio, often around half, set in the policy portfolio | Reduces regret either way; needs regular rebalancing |
| Dynamic hedging | Vary the hedge ratio with valuation, carry, momentum and risk signals | Can lower cost and risk; adds model and governance risk |
| Option-based hedging | Buy protection against large adverse moves while keeping the upside | Premium cost; works best when implied volatility is low |
| Proxy and cross hedging | Hedge through a correlated, more liquid currency or basket | Cheaper or more liquid; correlation can break down |
Instruments
Forwards, non-deliverable forwards (NDFs) for restricted currencies such as the rupee, currency swaps, futures and options, compared on cost, liquidity and operational fit.
Cost of carry
The interest-rate gap between two currencies sets the cost or gain of hedging. We model it alongside expected currency moves, so the hedge decision is a risk-reward choice, not a default.
Hedge ratio by asset
Bonds and equities need different hedge ratios. Currency often dominates bond risk, while for equities it can partly offset market falls.
Cash flow and roll management
Roll schedules, settlement cash needs and counterparty limits, planned so that hedges do not create liquidity strain in volatile markets.
A continuous risk cycle
Risk management is not a one-off report. Each step feeds the next, and the cycle repeats as markets and the institution change.
Profile
Agree objectives, liabilities, loss tolerance, liquidity needs and constraints.
Budget
Turn the profile into risk limits by asset class, strategy, factor and position.
Measure
Map the risks actually held: volatility, VaR, expected shortfall, factors, concentration and liquidity.
Stress test
Run historical crises and forward-looking scenarios on the real portfolio, not a model portfolio.
Control
Research the hedges, sizing changes and rebalancing rules that bring risk back inside the budget, with their costs.
Monitor and report
Track limits and early-warning signals, and brief the risk or investment committee on a regular cycle.
What clients receive
- Institutional risk profile and risk statement
- Risk budget by asset class, strategy and factor
- Monthly risk dashboard
- Stress test and scenario reports
- Hedging and overlay research
- Liquidity stress analysis
- Currency exposure map and hedge-ratio study
- Country allocation scorecard
- Risk committee briefing packs
- Annual risk framework review
Our risk profiling and risk management work is research and analysis for institutional clients. It is not investment advice or a suitability assessment, and all investment and hedging decisions remain with the client. Iterate Analytics provides independent research and analysis to institutional clients only. We do not provide investment advice, and we are not registered with the Securities and Exchange Board of India (SEBI) or any other securities and exchange board or regulator as an investment adviser or research analyst. We do not work with retail or individual clients.