Varenne Capital

ESMA / Liquidity stress testing

About Varenne Capital

Varenne Capital Partners is a process-driven, global investment manager whose purpose is to deliver superior long-term returns with the minimum necessary risk-taking. They strive to achieve this goal by combining complementary investment frameworks – Long Equity, Short Equity, Merger Arbitrage and Tail Risk Hedging – in a single strategy.

Services provided

Quantitative solutions

The new ESMA liquidity stress testing guidelines came into effect at a challenging time for the funds industry due to the on-going impact of COVID-19 on operations and financial markets. Through this partnership with MJ Hudson Quantitative Solutions, INDOS is now able to facilitate independent liquidity stress testing for its clients in an efficient way, reducing their operational burden and enabling them to demonstrate compliance with the new requirements.

Bill Prew, CEO of INDOS Financial

Strong risk management and corporate governance are key pillars of our responsible investment policy and our chosen independent depository and risk service providers are now able to reinforce our risk oversight and transparency through their collaboration and the provision of regular liquidity stress testing.

David Mellul, Managing Director of Varenne

The ESMA guidelines are principal based which brings subjectivity and complexity to the implementation of an appropriate solution. This fits well with our RiskMonitor® platform which is designed to facilitate client and fund specific risk reporting that aligns with the risk tolerance and underlying asset mix of each fund. This partnership with INDOS brings new operational efficiencies to the benefit of our clients.

Max Hilton, Managing Director of MJ Hudson Quantitative solutions, Project Lead

Background

When the ESMA requirements came into force in 2020, Varenne Capital sought out a provider for regular liquidity stress testing, to reinforce risk oversight and transparency.

MJ Hudson Quantitative Solutions generates liquidity risk metrics via its RiskMonitor® Liquidity solution and online platform. This incorporates analysis of investor behaviour as well as asset risk scenarios to provide a comprehensive asset and liability appraisal in a board and investor friendly format.

Market, political and regulatory pressure to increase transparency and substance means many investment managers opt for an external solution for liquidity stress testing which has many benefits, from enhanced analytics and flexible reporting through to time and cost savings.

Our approach

The Quantitative Solutions team work with Varenne Capital's chosen depositary, INDOS Financial, to source fund asset and liability data which fed into our RiskMonitor liquidity solution. Our end-to-end report process meant the reports can be completely automated, acting as an invisible glue between the administrator or depositary and the investment manager. The solution incorporates analysis of investor behaviour as well as asset risk scenarios to provide a comprehensive asset and liability appraisal in an investor friendly format.

Business development contact:

Varenne Capital

Varenne Capital

Background

Our approach

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