What We Do
River and Mercantile Derivatives is a provider of structured equity and liability driven investment (“LDI”) to institutional investors. We offer a bespoke approach that is affordable and transparent.
Structured equity involves the use of equity options to create tailored exposure to equity markets. Often our approach has the effect of reducing downside risk exposure, this protection being achieved through the forfeiture of a proportion of the upside.
We dovetail this approach with LDI – the generic name for the methods investors use to reduce the risks they face in relation to changes in the value of their liabilities. LDI typically uses bonds portfolios or interest rate swaps that match the profile of liabilities.
The Group has been offering structured equity and LDI solutions to our clients since 2004.
The Group’s investment process is built around maximizing the likelihood of meeting its clients’ investment objectives, whatever they are.
Understanding of Risk
Managing exposure to risk is critical. R&M’s concern is to avoid the risk of actual loss, and in doing so it manages risk across multiple dimensions (such as normal volatility, market stress and permanent loss). The nature of risk changes with market conditions.
R&M seeks to diversify across a range of asset classes or positions, in order to reduce the risk of not meeting an investment objective. R&M’s teams will generally design investment decision-making constraints in order to achieve and maintain diversification.
The Group will seek, where it is cost effective to do so, to hedge risks where the Group expects the clients’ risk to be disproportionately high compared to the expected return and/or its credibility. R&M most commonly employs hedging in relation to interest and inflation risks, equities and currencies.
Appropriate Use of Alpha
R&M will make use of active management within markets or segments of markets where the Group considers it appropriate to do so. Generally this will be due to one or both of two reasons: R&M believes the alpha source offers meaningful added value benefits, and/or the active strategy meaningfully improves the likelihood of meeting the client objective due to a significant improvement in the relationship between risk and return.
R&M will make decisions to rotate investments, whether this is in asset allocation, hedge design or the selection of alpha strategies and does this in pursuit of added value and improvement of stability of return delivery to the objective.