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Part III: Risk Management and Its Governance
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Part III: Risk Management and Its Governance
by Didier Guennoc, Christian Diller, Peter Cornelius, Thomas Meyer
Mastering Illiquidity: Risk management for portfolios of limited partnership funds
Cover
Title Page
Copyright
Dedication
Foreword
Acknowledgements
Chapter 1: Introduction
1.1 Alternative investing and the need to upgrade risk management systems
1.2 Scope of the book
1.3 Organization of the book
Part I: Illiquid Investments as an Asset Class
Chapter 2: Illiquid Assets, Market Size and the Investor Base
2.1 Defining illiquid assets
2.2 Market size
2.3 The investor base
2.4 Conclusions
Chapter 3: Prudent Investing and Alternative Assets
3.1 Historical background
3.2 Prudent investor rule
3.3 The OECD guidelines on pension fund asset management
3.4 Prudence and uncertainty
3.5 Conclusion
Chapter 4: Investing in Illiquid Assets through Limited Partnership Funds
4.1 Limited partnership funds
4.2 Limited partnerships as structures to address uncertainty and ensure control
4.3 The limited partnership fund's illiquidity
4.4 Criticisms of the limited partnership structure
4.5 Competing approaches to investing in private equity and real assets
4.6 A time-proven structure
4.7 Conclusion
Chapter 5: Returns, Risk Premiums and Risk Factor Allocation
5.1 Returns and risk in private equity
5.2 Conclusions
Chapter 6: The Secondary Market
6.1 The structure of the secondary market
6.2 Market size
6.3 Price formation and returns
6.4 Conclusions
Part II: Risk Measurement and Modelling
Chapter 7: Illiquid Assets and Risk
7.1 Risk, uncertainty and their relationship with returns
7.2 Risk management, due diligence and monitoring
7.3 Conclusions
Chapter 8: Limited Partnership Fund Exposure to Financial Risks
8.1 Exposure and risk components
8.2 Funding test
8.3 Cross-border transactions and foreign exchange risk
8.4 Conclusions
Chapter 9: Value-at-Risk
9.1 Definition
9.2 Value-at-risk based on NAV time series
9.3 Cash flow volatility-based value-at-risk
9.4 Diversification
9.5 Factoring in opportunity costs
9.6 Cash-flow-at-risk
9.7 Conclusions
Chapter 10: The Impact of Undrawn Commitments
10.1 Do overcommitments represent leverage?
10.2 How should undrawn commitments be valued?
10.3 A possible way forward
10.4 Conclusions
Chapter 11: Cash Flow Modelling
11.1 Projections and forecasts
11.2 What is a model?
11.3 Non-probabilistic models
11.4 Probabilistic models
11.5 Scenarios
11.6 Blending of projections generated by various models
11.7 Stress testing
11.8 Back-testing
11.9 Conclusions
Chapter 12: Distribution Waterfall
12.1 Importance as incentive
12.2 Fund hurdles
12.3 Basic waterfall structure
12.4 Examples for carried interest calculation
12.5 Conclusions
Chapter 13: Modelling Qualitative Data
13.1 Quantitative vs. qualitative approaches
13.2 Fund rating/grading
13.3 Approaches to fund ratings
13.4 Use of rating/grading as input for models
13.5 Assessing the degree of similarity with comparable funds
13.6 Conclusions
Chapter 14: Translating Fund Grades into Quantification
14.1 Expected performance grades
14.2 Linking grades with quantifications
14.3 Operational status grades
14.4 Conclusions
Part III: Risk Management and Its Governance
Chapter 15: Securitization
15.1 Definition of securitization
15.2 Financial structure
15.3 Risk modelling and rating of senior notes
15.4 Transformation of non-tradable risk factors into tradable financial securities
15.5 Conclusions
Chapter 16: Role of the Risk Manager
16.1 Setting the risk management agenda
16.2 Risk management as part of a firm's corporate governance
16.3 Built-in tensions
16.4 Conclusions
Chapter 17: Risk Management Policy
17.1 Rules or principles?
17.2 Risk management policy context
17.3 Developing a risk management policy
17.4 Conclusions
References
Abbreviations
Index
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Part III
Risk Management and Its Governance
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