Risk Parameters & Management

Risk management is the foundation of the LASSO portfolio:

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Volatility & Drawdowns

We manage volatility subject to three key guidelines:

  1. a daily volatility band of +/- 1%;
  2. a target maximum calendar month drawdown of -4%; and
  3. a "stop loss" calendar month trigger of -3% to evaluate whether to reduce net equity exposure.

Equity Exposure

Our guideline is to keep composite net equity exposure in a band between 20% and 50%.

Diversification

The portfolio typically has 15–25 underlying funds, with a maximum allocation per individual manager of 20% (at purchase).

Risk Monitoring

Performance of each underlying fund is monitored daily. Statistical analyses are conducted on a periodic and as-needed basis.

Quantitative gauges of risk include:

  1. Daily volatility
  2. Daily, monthly, and absolute drawdowns
  3. Net equity exposure
  4. Rolling returns, correlations, beta, standard deviation, and alpha
  5. Uncharacteristic performance triggers a review of the portfolio or a position

Qualitative gauges of risk for each manager are reviewed on a monthly/quarterly basis, or managers are contacted for updates as needed. The portfolios of underlying funds are reviewed regularly to ascertain changes in overall or position-level risk.