Waha Capital Annual Report 2015

Investment Process

The investment approval process is illustrated below:

investment process

Investment approval Process

After a detailed fundamental analysis of the target investable market, the portfolio managers propose a list of investments to the Risk Committee for approval. Most new investments require the portfolio managers to submit a detailed investment paper to the Risk Committee for approval.

Risk management tools

Risks are managed through the use of several tools, including:

  • Stop loss policies

    The stop loss policy relates to a pre-determined loss exposure limit. If the loss on a security position or a sub-portfolio exceeds pre-set loss limit set by the Risk Committee, the breach will be flagged to the committee members to take the appropriate action.

  • VaR limits

    The VaR is usually used to quantify the level of financial risk within an investment portfolio over a specific time frame. The VaR policy is implemented at the portfolio level and sub-portfolio level, and gives an indication of the expected losses over a specified period of time, taking into account the current composition. We calculate the liquidity-adjusted value at risk (LAVaR) for individual positions using return volatility over the last five years. This allows us to compare positions with different fundamentals and sensitivities. This method takes liquidity cost of individual positions into consideration and assesses it using bid-offer spreads.

  • Macro hedging policies

    A number of limits are set to monitor the concentration risk of the portfolio. These limits are fixed and any breach has to be addressed with the Risk Management team. Various hedging tools are used to mitigate the risk as per Investment Committee approvals.

  • Interest rate hedging policies

    Interest rate movements represent a major risk to fixed income investments even if the primarily criteria for bond selection is positive views on credit. The management of IR risk is therefore required to appropriately position the portfolio.

  • FX hedging policies

    Similar to interest rate hedges, we employ FX hedges for non-USD bonds as required to achieve the right risk/return profile of the portfolio.

  • Other limits

    Other limits such as concentration limits by issuer, sector and geography are also set.

Monitoring of the policy

Securities are monitored daily by the Risk Management team. If any of the limits are breached, a notification is automatically sent to the Risk Committee, and the portfolio manager has to propose corrective actions. The Risk Management team produces a portfolio overview report, which allows the management to track the portfolio performance and positions on a weekly basis and even daily during times of stress.