Abstract: Manager selection, while highly important, can be a complex and lengthy exercise from start to finish. Solovis Risk Pro can help investors accelerate the overall process by providing analytics that assess whether a manager seems to be in line with its stated objective and style and how a manager can potentially fit in their portfolio.
Manager selection is a highly important aspect of any institutional investment program. The process can be complex and lengthy, as investors navigate various exercises, from sourcing to due diligence to hiring decisions.
Vital qualitative aspects of the selection process, such as gaining a deep understanding of a management team and their strategy, rightfully require considerable time and effort. However, Solovis Risk Pro can help investors accelerate the overall process by providing tools to assess:
The Risk Pro tearsheet is a dynamic, polished view of any investment return stream. Uploading an investment's returns onto Risk Pro allows for a prompt evaluation of its historical performance, factor-driven risk and return breakdown, and potential impact on a portfolio.
First on display are common performance metrics, such as return, volatility, and Sharpe ratio, to help quickly understand if the investment meets return and risk expectations.
Exhibit 1: Performance Summary Section of Risk Pro
Source: Solovis.
Next, factor-based analysis helps to better understand the drivers of risk and return in the investment. Risk Pro uses the factor lens to determine the investment's risk factor exposures, which are then used to compute risk and return attribution. This information can help investors quickly identify gaps between their understanding of the investment's strategy and the empirical analysis of past returns. The trend view of factor exposures can also uncover style drift exhibited by the manager over time.
Exhibit 2: Factor Analysis Section of Risk Pro
Source: Solovis.
As a next step, investors can evaluate the investment's potential impact on their portfolio. The Correlation section allows users to view the absolute, relative-to-benchmark, or residualized return correlations to the investments in their existing portfolio, providing a sense of how much diversification benefit a new investment can potentially offer.
Exhibit 3: Correlation Analysis Section of Risk Pro
Source: Solovis.
Using Risk Pro, investors can efficiently filter out investments that carry unwanted risk concentrations or lack diversification benefits, allowing them to focus their time on the investments that have the best chance of enhancing their portfolio.
Contact Solovis to learn more or request a demo.