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‘Sokrat’ Investment Group Introduces Liquidity Risk Management System

August 27, 2008

The ‘Sokrat’ Investment Group is continuing to actively work on improving the system of risk management for its clients, by proposing a new Ukrainian market for technology by which it is possible to assess the liquidity of shares portfolios.

The Group’s specialists developed this innovative technology to quantify the risk of liquidity for shares traded on the PFTS, which is based on techniques used by leading international investment banks. In adopting this system, several factors were taken into account, including the ‘Sokrat’ Investment Group’s great experience in trading activities on the Ukrainian stock market, as well as the ‘Sokrat’ Asset Management Company’s history of successful cooperation with institutional clients such as insurance companies. Implementing a liquidity risk management system significantly enhances the Group’s capabilities in terms of quality service provision. It permits one to quantify the possible risks of a lack of liquidity in the sale or restructuring of portfolios of institutional and major private investors and to take these risks into account at the time of making investment decisions.

Currently, Ukraine and the CIS countries, assets’ liquidity is classically measured by introducing several classes of liquidity. This approach quite objectively reflects assets’ liquidity during the initial consideration of possible investment, but does not give a clear understanding of the discount level due to a lack of liquidity, which may accompany a portfolio’s sale or restructuring within a limited time period.

The technology developed by the ‘Sokrat’ Investment Group allows large portfolio investors, who are still at the stage of making a decision, to assess the level of potential loss on their respective securities’ portfolio in the case that an emergency sale or rapid restructuring is required. Investors are thus able to continuously monitor the liquidity risk in their portfolio and minimize possible losses in the liquidation or restructuring of their investments. This, in turn, makes it possible to build more dynamic management strategies for managing securities portfolio, while maintaining liquidity at a risk level acceptable for each investor.

According to Taras Eleiko, the Head of the Department of Risk Management and Control at the ‘Sokrat’ Investment Group, this newly-developed technology greatly simplifies the investment decision-making process for major private and institutional investors. At the same time, the Group’s specialists have received an additional instrument for the effective management of the liquidity of client’s particular portfolios, which optimizes the process of selling large blocks of shares in order to minimize losses due to a lack of liquidity of assets and possible changes in market shares’ prices during the liquidation process.

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