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Vidrio Blog

4 min read

Holistic Portfolio Management Tools in Times of Market Stress

Covid-19 has caused businesses of all types to look at their disaster preparedness and business continuity planning. For fund allocators, the market downturn caused by coronavirus fears brought the importance of high-quality integrated systems into sharp focus. Here are a few issues we are seeing our clients facing and how Vidrio is helping:

 

Issues fund allocators face during times of market stress and what portfolio management tools can mitigate those issues.

 

Issue #1 – Impact on holdings in times of market stress

In a market sell-off, many portfolio managers are acutely concerned about the impact on their holdings. The core job of a portfolio management system is to help answer three critical questions:

  1. What do I own?
  2. How is it doing?
  3. What can I do about it?

A holistic operating system like Vidrio focuses on providing information to answer these questions by

  • Giving you full views on all your manager relationships
  • Providing staffing and systems to show updated performance as new numbers become available
  • Offering scenario and stress test results to forecast market impacts on your holdings at the portfolio, fund, and exposure category
  • Allowing allocators to access the portfolio impact so you can then think about any changes that may be necessary from hedging options to raising cash to redemption concerns

Vidrio provides insights into all of these questions – looking at the real-time options for a manager through portfolio simulation tools to look at prospective changes and by modeling manager redemption terms at the series and share class to analyze liquidity options.

Issue #2 – In times of market stress depth of data matters

As PMs and Analysts parse the portfolio and manager profiles to assess exposure to regions and sectors most impacted by the coronavirus, the ability to provide holdings-based exposure and risk detail becomes very valuable. Holdings based exposure allows for deeper slicing and dicing of manager exposure to pinpoint areas of both concern and potential profit. Risk analysis at the holdings level will also allow for better assessment of which managers may be in peril, and which are offering support through risk mitigating strategies and holdings.

While risk analysis using only performance history can be indicative of the direction a manager is heading, it is select data input and doesn't say anything about exposure.
 
For allocators who may look to use a hedging overlay, in-depth exposure and risk insights are critical in selecting which types of hedging instruments to use, as well as the ability to test the hedge's effectiveness through portfolio simulations and backtesting.

Issue #3 – Too many calls to be made in times of market stress

Allocators are facing information pressure on both sides of their portfolio. On one hand, they need to reach out to their fund partners for updates and to record the information they gain from these updates. On the other hand, they have to respond to their investors and key stakeholders who are similarly checking in for updates.

A holistic Technology Enabled Service like Vidrio provides a range of helpful services in pressure situations like this:

For manager interactions:

  • Quick access to manager information including phone numbers and staff-wide names
  • An inbuilt CRM to record information gained from the fund manager
  • Quick access to fund terms in case changes become necessary
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For client interactions:

  • Fingertip access to portfolio exposure levels, current performance estimates, and other details
  • Index and benchmark comparisons
  • Risk analysis such as anticipated performance in times of stress
  • Ability to view client holdings across multiple portfolios
  • Use of a dedicated Client Portal where your investors can see their portfolio specific information and other information you make available to them

All these features and more allow you to respond more quickly and thoroughly to market events. Putting your clients at ease by giving them the information and insights you’ve gathered rather than the dreaded “I’ll get back to you” or worse, no response at all.

Issue #4 – Shutdowns without shutting down in times of market stress

Globally, many offices have already shut down, and Business Continuity Plans are going into effect. When your staff works remotely, having a cloud-based SaaS enables your team to access the system anywhere. It also helps that all staff are working off the same data pool and in the same front, middle, and back-office tool. We are prepared on our end too, with a full BCP/DR plan that enables Vidrio’s systems to function seamlessly even as our staff works remotely across the globe.

This is not the time to email spreadsheets back and forth.

During times of turmoil, information must disseminate quickly and uniformly. The updates coming from external managers are critical to keeping everyone on the same message to all clients. Single DB tools like Vidrio empower remote workers a unified and timely data source.

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Issue #5 – Opportunities found in times of market stress

For hedge fund allocators, there are some early indications that many managers are proving their merit by protecting against the market turmoil and even finding ways to profit from the upheaval. 

Finding the silver lining in the face of this unfortunate outbreak and reaching out to investors and stakeholders with some encouraging news should be part of the communication plan, especially if you have portfolio and manager level metrics to back up the ray of sunshine in the darkness.

 

In times of market stress, it's essential to have a system that works.

Vidrio clients have a lot on their minds these days, but systems shortcomings are not on that list right now. By providing services designed to support their businesses in times of stress, and systems that give the information you need when you need it no matter where you are working from, Vidrio is helping our clients stay business healthy and prepared for further market turmoil. 

Brian Robinson
Written by Brian Robinson

Brian joined Vidrio in 2015 to lead sales and marketing activities. Brian has worked both as an analyst on a fund of hedge funds, and has helped implement enterprise risk and technology systems to some of the largest hedge fund allocators in the world. Prior to joining Vidrio, Brian was a Sr. Sales Executive at MSCI RiskMetrics on the hedge fund transparency team. Brian served as Sr. Analyst at J.H. Whitney Investment Management on both Asian and Commodity FoHFs. And Brian spent seven years at JP Morgan in sales and analytic roles. Brian has a Masters in Finance from the Zicklin School at CUNY Baruch, and a BS in International Relations from Colgate University (Go 'Gate!).

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