Disciplined Risk Management
Risk management involves skill, experience, and unwavering discipline. The Nipun team is deeply skilled and experienced in risk modeling and our commitment to disciplined investing is absolute. The risk budget of the strategy is spent in areas where we believe our informational advantage is greatest. Our goal is to be careful stewards of the budget we are given, and never take more risk than promised.
Broadly speaking, there are three types of risks that concern us. The first relates to beta, country, currency and other common sources of risk. The second is risk arising from changing market conditions and the impact these changes may have on our sources of alpha. We strictly manage both of these types of risk. The third type of risk emerges from extreme episodic events. Such events may relate to the liquidity preference of a certain group of investors. While these events are hard to predict, the impact from such event is generally short lived and prices eventually revert to fundamentals. The most appropriate course of action at these times is to stay true to our investment discipline, while managing potential downside.
The sources of risk and their importance varies over time. Factors that drove volatility in 1998-1999, 2007-2008 and 2009 were all different and the factors that will drive volatility in the future will be different as well. The lessons we learned first hand over the market cycles have shaped our views. Nipun takes a comprehensive approach to risk management, evaluating sources of risk across geographies, time horizons and modeling techniques.