RISK
REPORTING
&
PRIVATE
ASSETS
Measuring PRIVATE MARKET RISK matters
Risk management and reporting are amongst the ket fiduciary duties of any investor. In many cases, plans and savings institutions are required to measure and report risk metrics by their regulator.
As private assets find their way into retail products, robust risk measures and reporting are also increasingly required by regulation and end-investors. For instance, packaged retail and insurance products like PRIIPs in the EU require a 97.5% VaR metrics computed using monthly data.
Crucially, we know from existing research that private markets are risky. Exit market values can change with investor preferences and macro factors and each individual investment in private assets is exposed to market forces that have driven large swings in asset value in recent years.
USe PRIVATEMETRICS to report the risks of private assets
privateMetrics market indices capture of the dynamics of the broad market and can be used as asset allocation or global strategy benchmarks. They include the private2000® and the infra300® indices.
privateMetrics also includes thematic indices that focus on specific segments of private markets such as sector and geographies but also business or customer model, and style factors like size or revenue growth. Such indices can be combined and used to create a new benchmark that is representative of an investors choice of strategy or exposure to private markets.
Using the privateMetrics market and thematic indices or custom benchmarks, it is possible to measure risk of private markets or a given strategy both in terms of return volatility (in different currencies and using different weights) and in terms of extreme risks with metrics such as Value-at-Risk or Maximum Drawdown.
With this data a number of risk reporting frameworks can be satisfied in ways that were previously unavailable to institutional investors including under the Solvency-II framework and any other risk-based prudential system.
PRIVATE MARKET VAR and DRAWDOWN METRICS in Three SIMPLE STEPS USING PRIVATEMETRICS
Select the relevant benchmark
Given a private asset portfolio, select a corresponding privateMetrics broad market index, for example the private2000 index for global private equities or a custom benchmark corresponding to the portfolio exposure e.g., 50% US Tech Mid-Cap, 50% Infra in Europe.
Determine the risk metrics required for your reporting
Depending on the prudential and risk management framework used different types of risk metrics or sensitivity and scenario analyses are needed. For instance Solvency-II and ICS focus on value-at-risk.
Automate risk reporting with privateMetrics
Using the privateMetrics API, create an application that can query the necessary inputs to your risk reporting and be updated monthly and automatically.
Want to know more?
Contact a member of our team.privateMetrics® insights
the EDHEC Infrastructure & Private Assets Research Institute
