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Lynx Asset Management AB

PRI reporting framework 2020

You are in Direct - Hedge Funds » Investment process

Investment process

HF 06. ESG data, research and other resources used

Please describe the ESG resources and tools used in your investment decision-making process.
Category of ESG
Reason for use
          Lynx´s Execution Research department is responsible for the proprietary algorithms used to execute the trade signals that the models generate. The team has access to extensive data on market liquidity, volumes, order book data etc., and reports to the Investment Committee that is ultimately responsible for monitoring the strategy’s effect on the markets. Additionally, every quarter the Lynx Program is screened for direct holdings which violate international standards on environmental protection, human rights, labour
standards etc. As expected, there have been no hits as the Program does not invest in companies, but only in derivatives. The screening is done through ISS ESG, a provider used by Brummer & Partners risk control & Sustainability teams.
        
          
        
          
        
          
        
Select and explain how these resources are incorporated into the investment and risk management process?
Category of ESG
Investment/risk management process
Additional text (optional)
ESG data (proprietary, 3rd party, etc.)
          The Investment Committee at Lynx, consisting of six Portfolio Managers, is responsible for portfolio construction and for deciding risk allocations to the markets in which Lynx trades. Lynx has historically had a conservative market selection approach focusing on the most liquid markets in order to minimise any potential market impact. The
allocations are set so that Lynx’s positions and trading volumes should be small in relation to the open interest and daily traded volume of the markets. Thus, we do not trade in markets with insufficient liquidity as we do not want to disrupt or materially affect market prices. This is in line with our goal to generate long-term sustainable returns dependent on stable, well-functioning and well governed social, environmental and economic systems.
        

HF 07. ESG incorporation into quantitative and fundamental analysis

07.1. Does your organisation uses quantitative analysis?

Please indicate at which level ESG is incorporated into the analysis.
Quantitative modelling
ESG incorporation
Outcomes and assessment/review

Please specify

          Multivariate models, machine learning etc.
        

Please specify

          Liquidity analysis
        
          Strict liquidity requirements for the markets we trade.
        

07.2. Does your organisation uses fundamental analysis?

07.3. Additional information [OPTIONAL]

We do not use fundamental analysis per se but we build quantitative models that are based on fundamental data such as inflation, economic growth, etc.


HF 08. Changes to the RI incorporation process over the past 12 months

08.1. Could you please indicate whether there have been any changes to your RI incorporation process over the past 12 months (e.g. additional resources, information sources)?

08.2. If yes, please describe them.

          In light of our commitment to responsible investing and our aspiration to be early adopters, we acknowledge the emergence of equity index futures that incorporate ESG factors into their construction process. In 2019, Lynx intensified the monitoring of this development and assessed several of these index futures. As a result, some of them will be included in selective portfolios in 2020.
        

HF 09. Integration of Active Ownership

09.1. Please select and explain how active ownership practices are integrated into investment decisions.


HF 10. Examples of ESG risks/opportunities in investment decisions

10.1. Please provide examples of where ESG risks and opportunities were incorporated into the investment decisions over the past 12 months.

Hedge Funds Strategy
Global macro
ESG factors
Environmental|Social|Governance
ESG risks/opportunities
          The Program´s mission is to generate high risk-adjusted returns and attractive portfolio properties by investing responsibly in equity indices, bonds, currencies and commodities through futures contracts across the global markets and in currency forwards. In order to achieve this, Lynx is dependent upon the health and the efficient functioning of the financial markets as well as of the society in a wider perspective. As a general rule, we will not exclude any particular market based on ESG factors alone. We are of the opinion that it is important to consider the factors within our overall investment process. Having said this, Lynx has historically had a conservative market selection approach focusing on the most liquid markets in order to minimise potential market impact. For liquidity and/or environmental and/or ethical reasons we refrained from including coal in our trading universe last year and for Lynx Dynamic in specific, one of the vehicles managed by Lynx Asset Management, we ceased trading energy contracts at the end of 2019.
        
Financial risks
          In order to support the health and stability of the financial systems and minimize the risk of driving market prices, liquidity risk is a key focus area whereas other risk factors such as credit and enterprise risk are not relevant for our strategy as we only invest in futures and not in single stocks or corporate bonds. The derivatives included in the Program are mainly traded on efficient electronic trading venues where counterparty risk is managed through margin trading and centralised clearing.
        
Scope and process
          Lynx has a quantitative investment approach where trading algorithms aim to minimise the effect on market prices when executing trades. We have dedicated teams responsible for developing these algorithms and for monitoring market liquidity in order to ensure a smooth execution and minimal market impact. Lynx’s policy is to trade only on markets where the Program’s total position is small compared to the average daily volume. Fluctuations in traded volume and order book volume are handled by the proprietary trading algorithms. They will consider market conditions when deciding on how to execute an order and can temporarily halt trading in response to a large market move or significant reduction in liquidity.
        
Outcomes
          The long-term interests of our firm and society go hand in hand. We strive to generate good risk-adjusted returns while being a responsible investor even when assets under management grow. Long only strategies have at times been accused of driving up prices. The Lynx Program can take both long and short positions and the models are agnostic to being long or short over time. Additionally, by excluding markets for liquidity and/or ethical reasons we acknowledge the relevance of responsible investing where attention is paid to wider contextual factors, including the stability and health of economic and environmental systems.
        

10.2. Based on your example(s) provided above, please specify whether the incorporation of ESG factors affected the risk-adjusted returns of your hedge funds.


HF 11. Derivatives products and ESG impact

11.1. Do you use derivatives instruments as part of your hedge funds strategies and/or Funds of Hedge Funds?

Please select all the applicable categories of derivatives used.
Listed/OTC
Category of derivatives

specify

          FX Forwards
        

11.3. Please explain whether and how these derivatives impacted the risk-adjusted returns of your hedge funds investments?

Impact

Outcomes

          We only invest in derivatives in the Lynx Program so they are 100% accountable for returns.
        

11.4. Please indicate whether the use of derivatives triggered ESG risks/opportunities at the fund level?

11.5. Additional information [OPTIONAL]

          
        

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