London, 7 July 2022 – Moody’s Analytics has announced the addition of market risk analytics to its PFaroe Portfolio Management (PM) Platform. PFaroe PM now offers historical and Monte Carlo risk analytics alongside its multi-asset class performance attribution capabilities. PFaroe PM is a cutting-edge cloud-based solution which allows users to customize their performance attribution and risk analyses while providing an interactive tool to probe and analyze results.

The historical and Monte-Carlo analytics use a new simulation engine to generate market scenarios. Historical simulation applies past returns to market factors such as equity prices, interest and FX rates, market-implied inflation rates, among others. Monte-Carlo simulation, by comparison, uses the correlation and volatility of those same market factor returns as the basis for the generation of thousands or even tens of thousands of scenarios. Given this scale, Monte-Carlo simulation allows for extreme tail events to be modeled. Further, Monte-Carlo simulation allows more recent events to be given more weight, capturing changes in market volatility quicker.

In PFaroe PM, users can calculate risk measures such as standard deviation, Value at Risk (VaR), or expected shortfall using both historical and Monte-Carlo simulation methods.

Risk may change incrementally through time, complicating users’ ability to identify gradual changes when using point-in-time systems. To address this need, the PFaroe PM platform calculates, stores, and visualizes risk through time, allowing users to easily identify market changes. An intuitive risk decomposition then allows users to drill into the details of the sources of risk affecting their portfolio.

As market participants look for ways to navigate through the current rising interest rate and inflation environment, this enhancement to the PFaroe PM platform provides portfolio managers with a full view of their risk/return profile. Users are better equipped to avoid unwanted risks, to quickly respond to these risks them for their clients, and to turn investment risks into investment opportunities.

Commenting on the update to the PFaroe PM platform, Matthew Watt, Director of Product Management, Buy-side Solutions at Moody’s Analytics, said: “Understanding portfolio performance has never been more important. Increasingly, investors are seeking greater insight into the underlying factors impacting their portfolio managers’ investment performance. Offering risk capabilities using those same factors informs investors on the volatility underpinning each manager’s strategies.”

The latest version of the PFaroe PM platform will be available from August 1^st, 2022.