Japan Fund Management (Luxembourg) S.A.

Judiciousness. Attention to detail. Passion. Adaptability. No shortcuts.

Risk Management

Our comprehensive risk management framework (i.e. our risk management policies, procedures, processes, techniques and systems) allows us to effectively perform the identification, mitigation, profiling, measurement, management, monitoring and reporting of any risk to which each fund is or may be exposed to.

In particular: we establish an appropriate risk profile for each fund; we implement statutory as well as internal risk limits, both qualitative and quantitative, aligned with the risk profile of each fund; we monitor the risk levels vs the risk limits set, and the consistency between risk levels, risk limits and risk profiles for each fund; we provide regular reports and analyses on the current risk levels and on any actual or foreseeable breaches to the limits set, to ensure prompt and effective remedial actions when needed.

A wide range of Key Risk Indicators is employed for each risk category, namely market, sustainability, credit, counterparty, liquidity and operational risk, taking into account the investment strategy and the assets employed by each fund.

TRADITIONAL STRATEGIES
  • Market Risk. We evaluate dispersion risk (fund, benchmark, and active volatility), tail risk (Value at Risk, Expected Shortfall, P&L stress testing), leverage risk, and concentration risk. We also monitor market risk sensitivity measures (downside beta, DV100, CS100).
  • Sustainability Risk. We assess exposures to environmental, social and governance risk through proprietary methodologies based on several factors including issuer‑level, industry‑level and country‑level ESG indicators. We also assess the sustainability of the investment strategy itself in terms of complexity, use of derivatives, short‑selling/SFTs, and leverage.
  • Credit Risk. We assign internal credit scores through proprietary methodologies based on several factors including external credit ratings, CDS spreads and risk neutral default probabilities.
  • Counterparty Risk. We appraise the creditworthiness of OTC counterparties, prime brokers, and depositaries through proprietary methodologies.
  • Liquidity Risk. We monitor asset side liquidity risk (bid‑ask spread, bid‑ask spread volatility, expected trading volume), liability side liquidity risk (redemption risk, unitholders investment horizon, unitholders concentration), and overall liquidity risk under normal and stressed market conditions through proprietary methodologies.
  • Operational Risk. We gauge valuation risk, operational risk arising from delegates, operational risk related to internal functions (business execution risk, fraud and misconduct risk, key person risk, cybersecurity risk, tax risk, legal and regulatory risk) as well as ML/TF risk.
PRIVATE EQUITY STRATEGIES
  • Market Risk. We evaluate private equity risk (cash flows estimation risk, cash flows volatility, macroeconomic risk, exit strategy risk), exchange rate risk, interest rate risk, leverage risk, clustering risk and concentration risk.
  • Sustainability Risk. We assess exposures to environmental, social and governance risk through proprietary methodologies based on several factors including issuer‑level, industry‑level and country‑level ESG indicators.
  • Credit Risk. We analyse debt sustainability risk (LTV, DSCR, Net Debt to EBITDA) and credit spread risk.
  • Counterparty Risk. We appraise the creditworthiness of OTC counterparties, prime brokers, and depositaries through proprietary methodologies.
  • Liquidity Risk. We monitor asset side liquidity risk (secondary markets' trends, cash buffers), liability side liquidity risk (undrawn commitment ratio, debt maturity structure and covenants assessment), and overall liquidity risk under normal and stressed market conditions through proprietary methodologies.
  • Operational Risk. We gauge valuation risk, operational risk arising from delegates (in particular external appraisers), operational risk related to internal functions (business execution risk, fraud and misconduct risk, key person risk, cybersecurity risk, tax risk, legal and regulatory risk) as well as ML/TF risk.
REAL ESTATE STRATEGIES
  • Market Risk. We evaluate real estate risk (exposure to developments, rent collection, occupancy, WAULB), exchange rate risk, interest rate risk, leverage risk, clustering risk and concentration risk.
  • Sustainability Risk. We assess exposures to environmental, social and governance risk through proprietary methodologies based on several factors including issuer‑level, industry‑level and country‑level ESG indicators.
  • Credit Risk. We analyse debt sustainability risk (LTV, DSCR) and credit spread risk.
  • Counterparty Risk. We appraise the creditworthiness of OTC counterparties, prime brokers, and depositaries through proprietary methodologies.
  • Liquidity Risk. We monitor asset side liquidity risk (​property transactions' trends, marketing period trends, cash buffers), liability side liquidity risk (undrawn commitment ratio, debt maturity structure and covenants assessment), and overall liquidity risk under normal and stressed market conditions through proprietary methodologies.
  • Operational Risk. We gauge valuation risk, operational risk arising from delegates (in particular external appraisers), operational risk related to internal functions (business execution risk, fraud and misconduct risk, key person risk, cybersecurity risk, tax risk, legal and regulatory risk) as well as ML/TF risk.
INFRASTRUCTURE STRATEGIES
  • Market Risk. We evaluate infrastructure risk (​exposure to greenfield investments, demand risk, EBITDA margin, macroeconomic, political and innovation risk), exchange rate risk, interest rate risk, leverage risk, clustering risk and concentration risk.
  • Sustainability Risk. We assess exposures to environmental, social and governance risk through proprietary methodologies based on several factors including issuer‑level, industry‑level and country‑level ESG indicators.
  • Credit Risk. We analyse debt sustainability risk (LTV, DSCR) and credit spread risk.
  • Counterparty Risk. We appraise the creditworthiness of OTC counterparties, prime brokers, and depositaries through proprietary methodologies.
  • Liquidity Risk. We monitor asset side liquidity risk (​​infrastructure market trends, cash buffers), liability side liquidity risk (undrawn commitment ratio, debt maturity structure and covenants assessment), and overall liquidity risk under normal and stressed market conditions through proprietary methodologies.
  • Operational Risk. We gauge valuation risk, operational risk arising from delegates (in particular external appraisers), operational risk related to internal functions (business execution risk, fraud and misconduct risk, key person risk, cybersecurity risk, tax risk, legal and regulatory risk) as well as ML/TF risk.
OTHER ALTERNATIVE STRATEGIES

We have the necessary skills, knowledge, and expertise to manage other alternative investment strategies, such as: fund of funds; loan origination (e.g. direct lending, mezzanine financing); asset‑based lending (e.g. real estate debt, infrastructure debt); insurance‑linked securities; securitisations; project finance; Business Development Companies (BDCs); arbitrage strategies; volatility strategies; etc.
Our risk management systems are flexible and we can easily integrate ad‑hoc and tailor‑made approaches into our monitoring and reporting tools.

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