Ittai Korin, Founder & Chief Executive
Despite ongoing concerns regarding the lack of transparency and potential risk associated with hedge fund investments, this relatively new investment industry continues to show a steady pace of growth. Fueled by the prospect of double and triple digit returns and an unprecedented bull market, today’s investors have started taking an active interest in this emerging asset class. However, many industry pundits have time and again pointed out several rationales behind a seemingly unrushed progress of hedge funds. “One of the major concerns, among them, is the fact that most investors don’t consider hedge funds as a traditional asset class,” remarks Ittai Korin, founder and chief executive of PortfolioScience. Unlike equities and other fixed income instruments—asset classes that are defined by a common set of legal, institutional, and statistical properties—hedge funds are more like a mongrel categorization that includes private equity, risk arbitrage, convertible bond arbitrage, foreign currency speculation, and many other strategies, and styles. In contrast to other long-established investment vehicles such as stocks, bonds, and mutual funds, hedge funds have rather different risk vs. return objectives. Most hedge fund investors expect high returns in exchange for the corresponding risks that they are expected to bear. Perhaps, it is due to this reason that the new asset class is categorically taken for granted as a riskier proportion and thus the hedge fund managers do not seem to devote much attention toward its active risk management. “This is where PortfolioScience steps in as a boon for the hedge fund investment industry,” says Korin. Founded in 2000, PortfolioScience creates turn-key risk management systems for hedge fund companies, allowing them to provide their clients with quick portfolio risk analysis services.
He explains, today, every hedge fund company is trying to maximize investment returns, minimize risk, and stay competitive, all while complying with regulatory mandates with greater visibility. “Even if risk management has been a well-ploughed field in financial modeling for over the decades, the high variability facet of hedge funds calls for a new set of risk assessment protocols that is specifically designed to address their unique challenges,” Korin adds. To this end, hedge fund companies are seeking risk management solutions that are quick and effective in monitoring portfolios and producing useful analytical insights. “PortfolioScience aims to offer precisely this,” states Korin. The leading-edge risk analysis service provider brings to the table a hosted risk analysis solution, RiskAPI, which allows users to access powerful portfolio risk analysis functionality via a remote, dynamic API. “Rather than handing over only a pre-built risk report, we give users the tools that empower them to dig as deep as they want to generate a risk infrastructure for their fund,” says Korin. “We bring high performance and extensibility to the table.”
End-To-End Risk Management Solution
PortfolioScience provides users with the tools to create extensive analytical functionalities, bringing the entire sphere of quantitative analytics to the user’s fingertips. Clients are not required to gather relevant data as the RiskAPI software-as-a-service includes all the necessary historical pricing, computing power, and mathematics required to generate sophisticated portfolio and position level risk analysis. Using any of the various operating environments including Excel, data warehouses, PMS, EMS, and OMS systems, users can connect to RiskAPI and easily set up a robust and systematic risk management infrastructure for their hedge fund. Delivered as a remote API, the service allows hedge funds to access the PortfolioScience proprietary risk analysis engine, delivering robust risk analysis functionality. “Unlike the traditional approach, our approach is a live, fully functional service operating in the cloud.”
PortfolioScience provides users with the tools to create extensive analytical functionalities, bringing the entire sphere of quantitative analytics to the user’s fingertips
The company also offers an Enterprise version of RiskAPI that allows larger companies to build entire risk applications on a firm-wide basis. “Our Enterprise version enables users to perform high performance custom, automated risk capture,” states Korin. PortfolioScience’s engagement with a large asset management firm is an effective case in point. The client deals with several portfolios under its umbrella and was grappling with intra-day risk monitoring for several portfolio managers in its system. After initially approaching several traditional risk management vendors that only offered expensive static reports, they reached out to PortfolioScience. Upon the implementation of RiskAPI Enterprise, the client could dynamically and quickly run a bevy of different calculations including stress testing, exposure analysis, options analytics, and risk evaluation on a firm-wide basis throughout the day—on all its portfolio managers and their positions. “We achieved this in a cost-effective and a high-performance manner,” asserts Korin.
"PortfolioScience is dedicated to continuously working toward bringing newer solutions to clients, in line with the increasing complexity of the hedge fund industry"
What places PortfolioScience ahead of the competition curve is the combined experience and expertise of Korin and his team. Korin’s propensity to lead PortfolioScience and guide the firm’s development of risk management solutions—specific to hedge funds— comes as a natural progression, based on his several years of hands-on experience in the financial modeling industry. With a simple implementation process, the company’s RiskAPI solution is cost-effective—an added impetus to PortfolioScience’s prevailing eminence in the investment risk analysis realm.
Furthermore, PortfolioScience also partners with service providers that intend to step into risk management while catering to the hedge fund industry. “Because we deliver our solution through an on-demand API, these service providers are able to offer risk management seamlessly to their clients,” says Korin.
Fitting Into the Existing Framework
The RiskAPI solution can be integrated into a client’s existing Java or .NET framework. Recently, the company also announced the release of RiskAPI for the Python programming language. The latest version of the RiskAPI allows developers to directly access PortfolioScience’s on-demand, hosted risk analysis service in order to build or enhance sophisticated quantitative finance applications written in Python. As with the existing .NET and Java versions of the company’s RiskAPI Enterprise platform, the new Python client provides a whole range of quantitative risk analysis calculations executable on portfolios, sub-portfolios, and individual positions across multiple asset classes. Developers can harness bundled computing power, historical data, and analytics available within the RiskAPI system to generate on-demand, multi-model Value at Risk (VaR), stress-testing, factor and exposure analysis, and option and fixed income analytics. “We are excited to make RiskAPI available to the growing Python quant developer community,” says Korin. “Python is a hugely popular, user-friendly language that allows rapid development of quantitative finance applications. The RiskAPI system fits perfectly into this model.”
Sophisticated, Customizable Risk Analysis Add-Ins
Korin elaborates that for smaller organizations that do not have the budget for large infrastructure or simply do not need a firm-wide implementation, “The Excel add-in version of RiskAPI quickly delivers customizable risk calculations within a spreadsheet.” The unique VaR software component within RiskAPI add-in allows users to access powerful, portfolio risk analysis functionality from their existing spreadsheets. “This means that a hedge fund manager can swiftly set up a risk infrastructure for the funds by downloading positions from prime broker, administrator, or accounting system into a spreadsheet. It is that simple and you can almost immediately start analyzing exposure; no back-office integration is necessary,” says Korin, highlighting the user-friendliness of the add-in module.
A Promising Future
PortfolioScience is dedicated to continuously working toward bringing newer portfolio risk analysis solutions to clients, in line with the increasing complexity of the hedge fund industry. The company’s ability to provide flexibility to hedge fund managers has helped them gain substantial traction in the financial investment landscape. A perfect example of this is the Factor Index Construction Toolset, which allows users to dynamically construct factor indices based on dozens of fundamental, technical, and statistical metrics. With an intention to shore up its already robust risk management parameters, PortfolioScience now intends to roll out new features. “We are constantly adding new capabilities both in the analytical toolset—new calculations and innovative models— as well as in interface capabilities to interact with our system,” says Korin. With such dedication to innovation, PortfolioScience is poised to transform the investment risk management industry in the coming years.