Risk management permeates Hillsdale’s thinking in both investment and business management.
A comprehensive risk budget is established for every strategy either by Hillsdale or in discussion with clients in the case of separate accounts. Components of the risk budget are clearly identified within the process of portfolio construction, stock selection and performance assessment and are integrated into the overall strategy design.
Hillsdale uses a proprietary, real-time risk management system in the management of its portfolios. Risk budgets and controls are embedded in the investment process and are used equally to manage either active or total risk.
Time and effort is also spent on analyzing, quantifying and scoring outlier events; applying multiple VAR techniques; and performing Monte Carlo simulations. The application of statistical techniques within the alpha and risk forecast variables focus on journey management, extreme tail events and measuring the causality of factor returns.
Besides controlling for investment risk, Hillsdale’s risk management also explicitly controls for manager risk and includes three core components: reputational risk, operational risk and regulatory risk. The focus is on ensuring that there are more than adequate controls and checks on all key business processes that might potentially influence investment performance. Hillsdale’s framework is derived from the approach used by the leading independent auditors worldwide.