Validus has a longstanding track record of advising institutional investors (LPs), fund managers (GPs) and portfolio companies on market risk exposures such as currencies, interest rates, commodities and more.

It is the combination of our deep understanding of the alternative investment industry and our market risk expertise that makes us the obvious choice for clients worldwide, many of whom are leaders in their own field.

Our clients include:

  • Pension Funds
  • Government Agencies and Sovereign Wealth Funds
  • Private Equity (Buyout) funds
  • Private Equity (Secondaries) funds
  • Private Debt / Direct Lending funds
  • Real Estate funds
  • Infrastructure funds
  • Various corporates (private equity portfolio companies)

Strategy

Strategic insight underpins everything we do. In order to determine what to do about financial risk it’s key to understand what that risk is, how it can affect your business or investment case, and how you can most effectively and efficiently manage that risk. We utilise a simple but powerful methodology across all asset classes:

Identify and Quantify risks
Detailed risk identification is important to understand the nature of financial risks and how they impact the specific dynamics of each business/investment case. We work closely with our clients to gather the required intelligence, which is then used to pin-point key risks and create an overall model of exposures. Using probabilistic modelling we are able to measure the risk against tangible KPIs, such as change in investment performance (typically IRR), or free cash flow.

Establish objectives
Knowing the effect the identified risks may have is a key step towards deciding what to do about it. We assist clients in determining risk management objectives, such as desired level of protection / risk appetite, defined cost limits and available liquidity capacity.

Design risk management solutions
Based on established KPIs we design a number of hedging strategies that are aimed at meeting objectives in different ways. This can involve natural hedging arrangements, capital structure changes, or the use of financial derivatives such as forwards or options. It is crucial that the specific idiosyncrasies of the client is taken into account, instead of applying generic overlay strategies. Many close-ended funds have experienced disastrous results when attempting to hedge exposures with strategies not specifically designed for them.

Compare cost/benefit and optimise
Because we create a model of exposures we can apply all hedging strategies ex-ante to see how they impact the defined KPIs. This allows us to produce a cost/benefit analysis of all the solutions and define the one that best suits our client’s needs. Calibrations can then be applied to optimise areas such as hedge ratio and tenor, or mitigate other uncertainties, such as the risk of having to post large amounts of cash collateral or the risk of underlying investments not performing.

 

Implementation and Management

Validus provides a turnkey solution for implementing and managing hedging programmes, including onboarding banking counterparties, providing best execution of spot and hedging transactions, rebalancing and rolling positions, and tactically managing liquidity risk.

Working regularly with banks and other financial counterparties worldwide we enable the creation or optimisation of hedging frameworks, by negotiating ISDA/CSA terms necessary to facilitate chosen strategies. Agreeing sufficient credit support can often make a big difference, particularly for clients that have limited or restricted access to cash. Further terms can be negotiated to ensure liquidity is managed optimally. It is also important to work closely with the counterparties to ensure they understand the nature of the client they are facing (which can be complicated in a fund structure that includes different LPs, feeders, and illiquid investments). We project-manage this onboarding for our clients and add valuable expertise to a process that is difficult and time consuming.

Hedging market risk exposures like currencies is a dynamic process. An optimal strategy may become sub-optimal if it is not adapted to changing market dynamics and/or underlying investment activities. Most of our clients choose to outsource the management of the hedging programme to us, either in part or in full, to ensure the strategy remains optimal. Via our dedicated execution desk our clients also have access to best trading practices that are usually reserved for large financial institutions. We have obtained wide-ranging regulatory approval across most established financial markets to trade on behalf of clients, something very few advisory firms are able to do.

Monitoring and Reporting

Running a financial risk management programme requires timely access to a wide range of information, including valuation of underlying investments, mark-to-market of hedging positions, spot prices and forward points, market volatility and covenants / CSA thresholds. RiskView, our proprietary technology platform provides senior management and stakeholders with all of this information and more, in a transparent and intuitive way. This can be tailored to each client, and we typically set up automated data feeds from other providers such as fund administrators. Reconciliations with banking counterparties are carried out on a daily basis and we can also provide regulatory reporting on behalf of our clients.