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"We don't just measure risk versus the benchmarks - the classical approach - but look at other dimensions such as liquidity risk."


Romain Peltier
Head of Risk Control

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Risk management

Integrated into our investment processes, risk awareness is central to our investment philosophy.
 
Independent risk monitoring
Risk management and control is a pivotal part of our investment analysis, debate and decision making. It exists for all mandates and all managed portfolios.

Portfolio managers have instant and seamless access to complete risk analysis, while PAM’s Risk Control Unit independently monitors the risk dimensions appropriate to each mandate. This unit reports directly to Pictet Asset Management's CEO. Our internal compliance function provides a second level of control which covers mandate guidelines and portfolio restrictions generally.

A robust approach to risk management allows us to manage and continuously improve the quality of our investment processes throughout the firm.

Risk budgeting
Our risk management approach is based on the idea of risk budgeting. Risk budgeting provides a framework for deciding how active risk should be distributed over a set of predefined decision fields. Active risk (normally measured by the ex ante tracking error) is a measure of the likely future volatility in the return of a portfolio against its benchmark.

Integrated into the investment process, risk budgeting allows portfolio managers to test the quality of their investment decisions and gives them the opportunity to allocate active risk more efficiently.

Example: Country risk budget evolution

Regular reviews
Apart from ad hoc consultations, each portfolio is subject to an independent, comprehensive review at least monthly. Portfolio managers also join a risk and style review each quarter. Managers are therefore subject to independent and timely alerts on potentially dangerous exposures or on inappropriate risk budget levels.