Iran’s Attack on Israel Heightens Geopolitical Tensions
Iran’s missile and drone attack on Israel drew renewed attention this week to an apparent rise in geopolitical risks.
Managing Risk
Managing Risks in All Environments
PGIM’s risk management approach, across asset classes and investment styles, grounded on Prudential Financial Inc.’s history of managing risk for over 150 years, enables our affiliate managers to apply deep expertise, identify emerging risks, and deploy investment strategies for the benefit of our clients. This approach reflects our belief and experience that as the investing backdrop changes, the drivers of risk will likely evolve as well.
Balancing Risk and Reward
Across market cycles, PGIM seeks to appropriately balance risk and reward through a combination of systematic top-down and bottom-up monitoring and assessment of market, credit, liquidity and operational risks. Through our multi-manager model and global footprint, PGIM provides institutions access to a range of investment strategies that are designed to mitigate fallout in times of market stress, generate returns during periods of volatility, and provide diversification through public and private alternatives and dynamic multi-asset solutions.
At PGIM, risk management is at the center of our corporate governance, investment process, and organizational culture.
2024 Global Risk Report:
Resilient Investing Amid Geopolitical Uncertainty
Part 1: PGIM’s survey found that geopolitical risk and elections are top of mind for investors. Explore strategies to mitigate risk and capture opportunities. Explore Global Risks >
Part 2: Explore how geopolitical risks are changing the way investors are constructing their portfolios in the US, Europe, Asia-Pacific and Middle East. Explore Regional Risks >
A COMMITMENT TO RISK MANAGEMENT
With more than 1,400 investment professionals located on the ground across 42 offices, PGIM is focused on managing risk, harvesting its opportunities, and mitigating its potential adverse effects wherever these may arise.
Risk Processes
Implement governance and investment processes that seek to identify risks that may potentially impact investment performance of public and private assets
Managing Risk
Aim to manage risks with custom stress testing, disciplined due diligence, and asset-class diversification
Regular Monitoring
Update and monitor qualitative and quantitative rankings, and proprietary risk attribution models
Risk Reviews
Conduct periodic and ad-hoc in-depth risk reviews with investment committees
Featured Insights
Industrial Policy Is Back. How Will Markets Respond?
At a time of intensifying competition among global powers, governments are redeploying industrial policy.
Israel-Hamas War Elevates Risk as Fed Digests Inflation, Jobs Data
Markets are assessing the unfolding impact of the war in Gaza following last weekend’s deadly attack on Israel.
RISK MANAGEMENT FRAMEWORKS ACROSS ASSET CLASSES
PGIM Fixed Income is an active, global fixed income manager that builds market-leading risk management tools and provides novel and insightful advice to our portfolio management team. Our risk managers collaborate with portfolio managers and client advisors to promote portfolio construction that aligns with our clients' return expectations and risk preferences. The team also educates our investment professionals, clients, and prospects on our proprietary risk management framework.
Our risk management framework is grounded by several distinctive features, including:
Substantial Resource Commitment
- Up to 20% of PGIM Fixed Income’s investment professionals are fully dedicated to risk management and quantitative analysis functions
Dynamic, Daily Interaction with all Trading Desks
- Risk management, quantitative modeling and strategies teams sit on the trading floor
- Portfolio Analysis Group (PAG) employees sit directly on trading desks
Proprietary Risk and Attribution Models
- We believe risk management is a core investment management function and should not be outsourced
PGIM Real Estate offers a range of real estate equity, real estate debt, agriculture and sustainable investment strategies across the risk-return spectrum.
We put our fiduciary responsibilities first and are committed to transparency and maintaining a robust risk management environment. PGIM Real Estate takes a consistent approach to risk management that is applied globally to assess multiple levels of risk management at the enterprise, operational and investment levels.
Our robust risk management practices are coordinated through our well-staffed Legal, Investment Risk, Operational Risk, Internal Audit, and Compliance teams to provide governance, organizational infrastructure and processes to:
- Address major layers of risk on macro, portfolio and investment levels
- Develop views on how to manage risk regarding portfolio construction and investment strategies
- Review the underwriting of all proposed investments
- Monitor all portfolios and investments from inception to disposition via regular, comprehensive reporting to regional Investment Committees
- Identify, assess, mitigate, monitor and report on risks facing the overall investment management business
Additionally, our internal, dedicated Investment Research team is focused on actionable and relevant guidance to portfolio, transactions, and asset management teams. At the highest level, Investment Research consistently informs PGIM Real Estate’s professionals on opportunities and risks.
PGIM Real Estate has been a signatory of the UN Principles for Responsible Investment since 2009 with consistently high scores for governance, and seeks to embed ESG best practices throughout our risk management processes.
PGIM Quantitative Solutions designs proprietary equity and multi-asset solutions that seek to solve beyond alpha by combining the latest technology with scalable, rigorous risk controls customized to help solve each client’s evolving challenges.
Our approach to risk management is built on a comprehensive framework employed to evaluate risk on multiple dimensions including investment risk factors, managing risk, and monitoring risk across each of our platforms and strategies:
- Investment Risk Factors: Utilizing both proprietary and third-party models we rigorously assess potential risks via both return- and holdings-based analytics to monitor and address portfolio-based risks in real time.
- Managing Risk: We employ a proprietary optimizer to construct and regularly rebalance portfolios to maximize potential alpha while aligning with set risk limits and investment guidelines. Our highly diversified strategies avoid portfolio concentration and limit exposure to systematic risks.
- Monitoring Risk: Our portfolio management teams conduct regular, proactive risk assessment utilizing both proprietary and third-party risk management tools. This ongoing monitoring allows for swift identification and management of emerging risks, ensuring that performance drivers remain in line with expectations. Our Compliance unit monitors portfolio exposures relative to investment and regulatory guidelines on a daily basis and reports to the portfolio management team when a limit may be breached.
Jennison Associates specializes in active equity and fixed income investing, applying a fundamental approach to research and security selection. Risk management is integral to how we conduct our business and we believe that as the investment and operating environment evolves, so will the drivers of risk. Our risk framework is designed to identify and mitigate various forms of risk, with controls including systems and process monitoring and periodic risk reviews at senior levels of our organization.
- Corporate governance: Jennison’s corporate governance processes are informed by our board of directors and Risk Committee, with input from internal advisory groups. Chaired by our CEO, the Risk Committee focuses on emerging risks and operational risk exposures.
- Investment risk: Jennison’s investment professionals are the primary managers of investment risk. They receive additional support and monitoring through independently generated internal reports and the respective heads of investment platforms. Key areas of investment risk are also reviewed in firm-level executive forums.
- Investment operations risk: Our dedicated investment services personnel are tasked with ensuring robust oversight and necessary escalation for different aspects of investment operations risk, including counterparty, valuation, liquidity, and emerging risks.
PGIM Private Capital’s global network penetrates target markets and offers steady deal flows to investors, while building direct relationships with prospective issuers. We have 185 dedicated investment professionals on 47 deal teams and operating in 15 offices globally.
Our Patient, Long-Term investment Strategy is backed by a comprehensive Investment Process.
Credit Analysis / Pricing:
- In-depth credit analysis of all issuers completed by experienced local teams.
- Direct origination model allows for one-on-one dialogue with management teams.
- Relationship-based approach creates opportunities to get to know issuers and prospective issuers at a more granular level through years or even decades of discussions.
Portfolio Monitoring:
- Most investments contain financial covenants designed to help mitigate downside risk.
- Multiple dedicated teams of workout professionals to manage distressed investments.