RISK MANAGEMENT
Seeing Over The Market's Horizon
THE CITADEL APPROACH
Risk Management at the Center
We seek to manage risk in order to capitalize on opportunities and improve our performance. Disciplined risk estimation and management are deeply integrated components of the investment process across each one of our strategies.
We believe a well-constructed portfolio upfront will outperform in good markets and protect our client’s capital in difficult markets. For this reason, Citadel has spent more than 25 years establishing risk management as a core discipline. This approach begins with a dedicated governance group that oversees risk management. An emphasis on liquid markets, proprietary risk models and a diversified funding structure seeks to further strengthen our approach.
The Citadel Way
A dedicated risk management team
Operating independently of the investment businesses, and reporting to the CEO, the Portfolio Construction and Risk Group (PCG) guides the allocation of risk capital. It is supported by a dedicated R&D team to create custom tools and technologies.
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The Risk Management Center
Citadel’s Risk Management Center provides a comprehensive view of the various investment portfolios and how they fit within pre-established guidelines. Built in 2014, its front-end consists of a 16’ by 8’ interactive touchscreen designed to visualize data in ways that allow for rapid comprehension. Its back-end systems, which connect to every Citadel office worldwide, continuously run a wide range of operational readiness, risk, and stress test monitors.
Monitor and stress test portfolios
The firm establishes risk guidelines along three axes1:
- Risk level: Defines how much risk should be consumed at the fund, business, strategy, or portfolio manager level. Our risk management center monitors performance in real time through multiple channels using innovative analytics and flexible aggregation tools.
- Stress exposure: PCG runs hundreds of different stress tests on portfolios daily, testing the risk tolerances that have been set1. These tests include historical and forward-looking scenarios.
- Liquidity: Each fund maintains a liquidity reserve to ensure it is able to meet daily cash requirements. Our strategies primarily focus on liquid asset classes so that we are able to dynamically reposition portfolios to capitalize on market opportunities.
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Run rigorous processes
In pre-trade discussions, the Portfolio Construction and Risk group works to identify the impact of potential trades on a portfolio’s risk and stress exposures. In the ex-post analysis, the group evaluates the skill, infrastructure, investment universe, risk and working capital utilization of each business, and uses this information as a part of the risk capital allocation process.
Reinforce the culture
A solid framework is important, but successful risk management can only be accomplished when it becomes a central part of the portfolio manager’s analysis of potential trades and portfolio construction. Continuous communication and collaboration with the investment teams, combined with an in-depth understanding of the portfolios, play a critical role in maintaining and strengthening our risk culture.
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THE CITADEL APPROACH
"Risk management is the pillar of stability at the crossroads of opportunity."
Risk Management Highlights
VIDEO
Managing Risk to Build Results
Citadel capitalizes on investing opportunities using disciplined risk estimation and risk management to deliver for our investors.
→2017 Risk Awards Shine a Light on the Risk Center at Citadel
We are excited to share that Citadel received the coveted “In-House System of the Year” award at Risk Magazine’s 2017 Risk Awards.
Learn More About Our Award-Winning Risk Management Initiative
We’re honored to share that Citadel’s Risk Center was recognized as the “Best Risk Management Initiative” of 2015 at the American Financial Technology Awards on December 7.
