Optimisation of Debt Portfolio Mix

Our approach and techniques to determine the optimum fixed, floating, inflation-linked, maturity and/or currency mix of debt are based on proprietary business plan simulation models which we developed over many years of investment banking experience advising sovereigns, public utilities, and multi-national corporate debt managers around the world. We use Monte Carlo simulations of projected revenues and long term debt cashflows for the debt portfolio combined with alternative debt or hedging strategies. The results are typically presented in the context of the client's strategic plan in terms of, say, the likelihood that financial measures, such as net income or interest cover, reach critical levels.

TradeRisks Monte Carlo simulation model samples historic prediction errors from a historical database of implied forwards prediction errors for nominal and real interest rates and inflation. Risk is generated around current implied forward projections from the fact that the historic market implied forwards have been bad predictors of future rates and inflation. To estimate long term expected costs the model analyses the extent to which forwards have been wrong or biased in some directions more than in others.

The determination of the optimum debt composition or development strategy using TradeRisks methodology has the primary objective of reducing long term cashflow volatility within the business plan, but expected cost is also taken into account as described above as a secondary consideration.

Investment management

TradeRisks provides investment management services at both a strategic level and a more micro level.

At the strategic level, the TradeRisks team has considerable experience in working with central banks, fund managers and insurance companies on the theoretical and practical aspects of implementing benchmarks. Our benchmark analysis approach relies on the evaluation of risk-return trade-offs of alternative strategies relatively to the liability stream that funds them, where the risk is defined for multiple periods and captures the uncertainty in re-investment rates. Using these models, we are able to select investment strategies in a manner that takes into account the behaviour of market price and credit spread correlations in both stable and non-stable or extreme market conditions, i.e. combining event risk with statistical measures.

At the micro level, we specialise in the provision of fixed income discretionary portfolio management. We use HSBC as custodian and settlement agent.

TradeRisks also provides a manager selection and monitoring service. TradeRisks are independent of all investment managers and work to ensure their clients have the most appropriate managers for their portfolio. TradeRisks will not just consider the performance record of the manager but will examine the suitability of that manager for the client, their ability to operate and add value in the prevailing market, and most importantly, the priorities and needs of the client in both the short and long term. TradeRisks will also negotiate the management fees ensuring all charges are fully understandable and transparent.