Integrated multi-factor risk engine raises Revolution Analytics to new high

Multi-asset, multi-factor

Northfield and Confluence clients can now model and simulate factors for a full range of assets – equity and fixed income to start, derivatives, unlisted and private assets to come – on the same platform, under a common factor framework. A cloud-based/API framework ensures scalability, maximum security, and confidentiality ─ confidential information does not leave Revolution. Analysis is available at portfolio, position or security level. 

In a recent webinar, senior leaders from both organizations discussed how front, as well as middle office, will benefit. Northfield’s factor-based analyses, for example, allow the front office to see which aspects of a strategy represent attractive risk/reward tradeoffs, by revealing the contributions to risk and performance of a selected array of portfolio characteristics. 

When combined with Confluence’s historical simulation risk capabilities, the new Revolution multi-model approach gives insights few competitors can match, on performance, attribution and real-life compliance issues. This new partnership with Northfield results in, as one panelist describes it, “the revolution of factor risk.”

‘’Everything Everywhere’’ Model

The “Everything Everywhere” model, developed by Northfield, sparked the greatest level of interest. This hybrid multi-asset class risk model covers all financial assets, both public and private, in every country of the world. Not just traditional traded assets, equities, and fixed income derivatives, but also OTC/private assets, private equity, private credit, infrastructure, brick and mortar, and real estate

Launch and go-forward

The launch provides multi-factor risk capabilities first, followed by multi-factor performance analytics later this year. Coverage started with equities and traded or listed bonds; the ability to model ETDs, OTCs, and private assets will come during the summer and fall. Then, the multi-factor view of performance will be introduced – a topic of high interest at the webinar. 

As always with Confluence products, development choices will be strongly influenced by client priorities – which additional features will help the most, make the greatest difference? 

Moving even further into product enhancements, Northfield’s “risk systems that read” concept uses artificial intelligence to adjust models to reflect market use and sentiment. For highly active managers, this enables making the forecast horizon as short as one-two days. 

“One thing that’s very important to understand about factor models is that they do not require some of the theoretical assumptions baked into much of portfolio theory,” says Dan DiBartolomeo, Northfield Founder and President. “Our analysis can statistically determine how good a manager’s selection skill is for their mandate. Better yet, we’re not in the business of producing market indices… sometimes we find that our competitor’s models are biased by the fact that they’d like the risk model to line up with their benchmark indices.’’