A New Era: Investments for an Uncertain Road Ahead
Investors are facing a host of challenges in 2023, but ones that look far different than what they confronted over the past decade.
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 145 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.
With risk management integral to the way we construct portfolios we employ an agile approach dynamically tilting and timing our exposures and combining signals in a non-linear fashion to try to limit portfolio drawdowns.
A COMMITMENT TO RISK MANAGEMENT
With more than 1,400 investment professionals located on the ground across 47 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
Market Events: The Banking and Debt Crises
Views on the latest developments surrounding the debt predicament, the unrest facing the banking sector, and how regulators and markets may react.
Looking Beyond the Uncertainty
With ongoing market volatility a near certainty, PGIM’s Best Ideas highlight a host of areas where we believe investors will find promising opportunities.
INSTITUTIONAL ADVISORY & SOLUTIONS (IAS)
Dedicated team that provides objective, data-informed analysis to help CIOs and Investment Committees manage their portfolios. IAS provides custom client research that focuses on asset allocation, portfolio construction, real assets and manager allocation & selection.
Webinar Replay: Portfolio Implications of a Positive Stock-Bond Correlation World
What does a positive correlation between stocks and bonds mean for the future of portfolio construction?
Is There a Need for a Chief Liquidity Officer?
Liquidity risk can be more severe than volatility risk. Funds may need a designated chief liquidity officer for integrated liquidity management.
Building Portfolios with Infrastructure: Performance, Cash Flows & Portfolio Allocation
A framework to help CIOs determine the appropriate allocation of illiquid infrastructure investments.
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, impact and agriculture 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, Quant Equity: believes that company fundamentals ultimately drive long-term security prices, and we seek opportunities to benefit from the deviation between current pricing and a company’s long-term intrinsic worth. We utilize advanced quantitative techniques along with a blend of traditional and non-traditional insights derived from continuous research that enables our investment process to adapt and evolve over time.
- LONG-TERM SUSTAINABLE FACTORS: Across all of our quantitative equity portfolios, value, growth and quality factors are carefully chosen and constructed. Our investment process is based on strong fundamental and behavioral motivations, as well as academic foundations, ensuring staying power.
- EFFICIENT TARGETING OF FACTOR EXPOSURES: Our adaptive factor exposures allow us to examine stocks through the right lens. Factors are dynamically weighted to reflect differences in individual stock growth rates. Further, our top-down driven systematic insights are designed to complement bottom-up factor exposure.
- SEEK TO PRODUCE CONSISTENT ALPHA: Embedded in our process is efficient risk management which allows for purer factor exposures. We calibrate the construction process to target various levels of active return/risk profiles. In addition, we employ transaction cost controls that maximize excess returns.
- WIDE VARIETY OF BENCHMARKS: PGIM Quantitative Solutions' quantitative equity strategies span the entire universe. Our long-term track records speak to the team’s experience in navigating multiple market cycles across a broad scope of strategies.
PGIM Quantitative Solutions, Multi Asset: PGIM Quantitative Solutions’ Multi-Asset team produces proprietary Capital Market Assumptions (CMAs) which underpin our outlook on asset classes and the macroeconomic climate. CMAs form the basis of our strategic allocations, the foundation on which the Multi-Asset team seeks to construct its most appropriate investment solutions for each client.
Our systematic multi-asset strategies rely on factor models for asset selection and propriety optimization methods for portfolio construction. We use selective factor exposures, based in economic theory and insights from behavioral finance, to target risk-adjusted performance.
PGIM Wadhwani is a London-based quantitative multi-asset macro specialist, backed by one of the world’s largest asset managers. PGIM Wadhwani investment professionals include experts in economics, econometrics and portfolio construction.
- LOW CORRELATION TO TRADITIONAL ASSETS: All of our investment vehicles offer return streams with a low correlation to traditional assets - either in long run or both in the long run and in the short run.
- DIVERSIFYING: Our global strategies are diversified across asset classes, investment styles and time frames. They are designed to have a low beta to traditional markets over a full market cycle.
- DYNAMIC: Our investment process combines signals intelligently to be dynamic and nimble in changing markets.
- FOCUSED ON CAPITAL PRESERVATION: We incorporate risk management throughout the investment process and seek to maximise the Sortino ratio.
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 the various forms of risk, with controls including systems and process monitoring and periodic risk reviews at the senior-most levels of our organization.
- Corporate governance: Jennison’s corporate governance processes are informed by our board of directors and a Risk Committee, with input from internal advisory groups. Chaired by our CEO, the Risk Committee reviews emerging risks, operational risk exposures, and next actions.
- Investment risk: Jennison’s investment professionals are the primary managers of investment risk and 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 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 original 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.