Historical crises and custom factor shocks run through each fund's factor exposure to a loss per fund, per strategy and in total, including funds too young to have lived through the episode.
A multi-factor stress test shocks several risk factors at once (equities, credit spreads, rates, currencies, commodities, volatility) and measures what the combined shock does to each fund and to the whole portfolio through their factor exposures. AlternativeSoft runs multi-factor stress tests on any fund or portfolio: Historical episodes replayed through today's exposures, custom shocks you define, and correlated scenarios where the factors move together as they did in 2008 or March 2020. Because the test runs through factor exposure, funds with short track records are stressed as rigorously as those with twenty years of data.
Each fund's betas to equity, credit, rates, FX, commodity and style factors are estimated by regression, with LASSO selection to avoid spurious factors.
Pick a historical episode or set your own moves, for example equities minus 20 percent with credit spreads plus 300 basis points.
The shock passes through each fund's exposures and weights to a loss per fund, per strategy and in total.
Results feed the risk report and the committee pack, and re-run automatically when data updates.
Global financial crisis, euro crisis, taper tantrum, Covid drawdown, 2022 rate shock and others, applied through current exposures.
Any combination of factor moves, single or correlated, saved and re-used.
The exposures the stress test runs through, with R-squared and residual alpha.
Factor analysisWhether redemptions can be met when gates and side pockets activate.
Risk analyticsLoss by fund, by strategy, by region and in total, with the largest contributors flagged.
Portfolio riskBranded stress test reports for the committee and the regulator, generated automatically.
ReportingCrises are multi-factor events: Equities fall, spreads widen, volatility spikes and the dollar strengthens at the same time. A test that shocks one factor and holds the others still understates the loss and misses the funds whose exposures compound. Running the factors together, with the correlations observed in past crises, is what gives a credible number for the committee.
Running the test through factor exposures also solves the short-history problem. A fund launched in 2021 never saw 2008, but its exposure to equities, credit and rates is measurable today, so its 2008 loss can be estimated on the same basis as a fund with a twenty-year record.
Bring your current holdings. We run 2008, March 2020 and a custom multi-factor shock on them live.