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Some of the largest funds in the world are entirely macro-based: Soros, Brevan Howard, Bridgewater. They trade across asset classes, and seemingly with very concentrated allocations. What type of risk management framework do they adopt?

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2 Answers

Multi Factor Models are certainly used as a cross validation for policy.

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Each shop will differ - there is no widely used, unified framework shared across firms. Competitive advantages vary across shops, which ultimately reflect the biases/characteristics of the particular shop. Some will be far more mathematically sophisticated/inclined than others. Some maintain strong aversion to quantiative techniques such as risk models.

Regardless, the major shops all have some form of top-down risk management systems. Some will use Monte Carlo simulations to assess daily VaR. Some shops will heavily use factor models for risk assessment across positions. Some will go much further and use factor models for research to vary their level of conviction for a particular trade (e.g., for alpha generation).

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