, Managing Director of the alternative investment fund management (AIFM) company , provided her take on what changes in risk management are taking place now.

The investment market has been changing rapidly, and asset managers should adapt to new realities. How would you assess the market situation from a risk management standpoint?

According to article 15 of the Directive 2011/61/EU, AIFMs shall functionally and hierarchically separate the functions of risk management from the operating units, including from the functions of portfolio management. At UFG Capital, we use in-house frameworks and models to provide risk management services for funds under management and AIFM itself. Under our risk management framework we manage and assess all types of risks related to AIFM and funds under management on a regular basis. Based on recent two years, the impact of proper risk management is very hard to underestimate. 

The events that have materialised over the past two years have been unprecedented and have created new risks as a result. For instance, the Covid-19 pandemic has caused global supply chain disruptions that persist today. The tense geopolitical situation has worsened the condition of the European countries’ economies that have not recovered after the pandemic. Inflation readings today are also at 40-year highs, and volatility risk is heightened, with equity market indices posting the worst first half since 1962. Finally, ESG has evolved from being a concept to a regulatory requirement, and managers need to integrate them into investment frameworks.

All these factors leave AIFMs today operating in very challenging conditions. Previously, risk management was seen as an additional operational step to satisfy regulators. Today, it is regarded as essential to assessing and mitigating the risks that an AIFM faces on an ongoing basis. For instance, there is regular assessment and reporting to key stakeholders, accurate assessment of risk relative to returns, and the development of strategies to mitigate risks faced.

How does UFG Capital mitigate risks and changes in the field of investment?

At UFG Capital, we use high-quality analytics that are partially processed by AI, and Machine Learning (ML) in several ways. We use these tools to model volatility risk and other associated risks. By leveraging ML we can optimise all aspects of the AIFM operations, from the speed of responding to market movements to improving the accuracy of financial forecasts. Most of our risk management frameworks are automated or at the stage of being automated.

We also use ML to draw insights from our analytics. UFG Capital becomes much more efficient this way and we can focus our efforts on more productive activities and benefit for both AIFM itself and funds under our management. We uphold our funds through customising the most optimal investment strategies and helping to avoid unnecessary risks in accordance with funds investments strategy.

In the future, we aim to continue automating the risk management process and eliminate the need for manual labour in all routine tasks. The goal is to increase the speed and quality of decision-making for UFG Capital and funds under our management. We believe that the AIFMs who will thrive in the future are the ones who can react fastest and who can best assess risks.