RISK
MANAGEMENT
RISK MANAGEMENT AND COLLABORATION
Our investment teams aim to achieve attractive risk-adjusted performance by identifying market inefficiencies and undervalued opportunities, all while prioritizing risk management and capital preservation. A multi-tiered, iterative risk management system, encompassing both internal and external risk management, is designed to navigate various market cycles. Investment teams maintain direct access to Senior Management to facilitate fluid decision-making in rapidly changing markets.
DIVERSIFICATION
We achieve diversification by combining a nucleus of diverse and niche-oriented strategies with more traditional ones.
INTEGRATION
We foster a culture of cooperation, collaboration, and innovation to maximize efficiency and alpha generation.
Our primary focus is on generating results independent of traditional market direction, with a specific emphasis on specialist managers and idiosyncratic security selection.
Lucidity invests in portfolios of actively managed hedge funds aimed at diversifying traditional market exposures. Our objective is to create and deliver innovative investment solutions that compound investor capital safely.
Investors can place their assets in pooled investment funds or in customized solutions within our proprietary managed account framework. Each Lucidity managed account is a separate, distinct entity owned by the investor. Portfolio managers authorized by Lucidity manage the assets within each managed account, following investment guidelines and parameters outlined in an Investment Management Agreement.
DISTINCTIVE HEDGE FUND
MANAGENENT
We firmly believe that our proprietary strategy offers superior hedge fund portfolio management. The transparency it provides, often with daily updates, supports effective, informed investment decision-making while affording greater control of assets and stringent oversight of counterparties.
Additionally, the strategy's flexibility enables us to capitalize on opportunities as they arise, whereas in typical commingled fund investing, reallocations of capital must wait until the end of the month or longer.
These advantages—transparency, liquidity, and control—are rarely available in a traditional, commingled hedge fund investment format.
Our multi-manager strategy is designed to isolate idiosyncratic returns, for example with relative value equity through a sector-specialist approach. We target low overall net exposure, limited correlation, and low beta to the equity markets.
We seek out trading teams that derive their returns primarily from idiosyncratic exposure while generally minimizing overall market and factor exposure. Our rigorous bottom-up risk management framework emphasizes real-time risk monitoring, with defined drawdown triggers and contractual investment guidelines and restrictions to reinforce strict control of market risk.
Primarily equities focused, our specialists focus on a particular sector, industry, or region. Each sector-specialist team practices fundamental stock selection and incorporates sophisticated proprietary quantitative tools and risk management into their investment processes. We believe that combining uncorrelated sector-specialist teams focused on a defined universe of securities for which they have extensive experience offers us long-term, sustainable sources of alpha.
We are dedicated to delivering an investment business that attracts and retains talented manager teams. Our collaborative partnership approach and unique structure support this partnership, providing managers with autonomy, flexibility, and support to pursue their independent strategies.
RIGOROUS RISK MANAGEMENT
The operational infrastructure, when utilized effectively, has the potential to generate significant alpha within our business model. At Lucidity, our operations, finance, accounting, treasury, compliance, and counterparty management partners continually strive to maximize their respective abilities to extract value and build upon the firm's robust infrastructure, which has been the cornerstone for Lucidity’s founders over many years.
SEPARATELY MANAGED ACCOUNT STRUCTURE
Our primary line of defense in managing risk for Lucidity investors is the separately managed account structure at the core of our investment process. We do not allocate investor capital to commingled investment vehicles. Therefore, operational due diligence is of less significance to our process since we do not invest with external entities. Instead, we grant seasoned portfolio managers limited trading authorization, which is executed in strict accordance with our Investment Management Agreement.
RIGOROUS RISK MANAGEMENT
Lucidity's investment strategy is underpinned by a risk management philosophy that revolves around diversification across liquid strategies and capital preservation. Our risk management framework, overseen by an experienced risk team, incorporates elements at both the portfolio manager level and fund level, providing a transparent and comprehensive understanding of the risks to which the firm is exposed.
MULTI-TIERED RISK MANAGEMENT SYSTEM
Our risk management system operates on multiple tiers and employs iterative controls, combining both internal and external risk management measures. This approach ensures a thorough evaluation of potential risks and opportunities throughout our investment process.
PORTFOLIO STRUCTURE
Our portfolio strategy is constructed with portfolio managers who possess the ability to generate returns while recognizing and seizing opportunities without taking excessive risks. Leveraging smaller, more nimble pools of capital, we aim for uncorrelated outperformance. This approach not only grants the portfolio access to a broader range of investible opportunities but also enhances our ability to maximize returns relative to risk.
RISK MITIGATION
At Lucidity, we are dedicated to managing risk effectively to safeguard the interests of our investors. Our commitment to transparency, diversification, and capital preservation guides our risk management practices, enabling us to navigate the dynamic landscape of financial markets with confidence.