SD-07.4 — Concentration & Exposure Risk

Business Domain: BD-07 Investment Risk (Middle office) · Applies: BOTH

Purpose

Monitors how concentrated the portfolio’s risk is — in single names, sectors, geographies, currencies, factors and, for private markets, vintage years. A portfolio can be diversified by name count and still have its risk dominated by a few sectors or a few factors; Concentration & Exposure Risk measures the true concentration, against the concentration limits. It runs on the aggregated, look-through exposure that SD-07.5 produces.

Service Operations

• Aggregate exposure — by single name and issuer, sector and industry, country, currency, asset class and factor.
• Compute concentration metrics — top-holdings concentration, the Herfindahl-Hirschman index, active-weight concentration, the portfolio’s dependence on a small issuer set.
• Measure factor concentration — whether the portfolio’s risk is dominated by a few factors even when it is name-diversified.
• Measure vintage concentration — for a private-markets programme, the concentration of commitments in a small set of vintage years.
• Monitor against concentration limits — single-name, issuer-group, sector and factor limits, and the hidden or duplicated exposure across vehicles.

Inputs and outputs

• Inputs: the aggregated, look-through holdings from SD-07.5; classification and reference data (sector, country); factor exposures; the concentration-limit definitions.
• Outputs: the concentration dashboards, the limit-utilisation reports and the exposure heatmaps — recorded as Risk Measurement (E-19), consumed by SD-07.7.

Entities

• Consumes: Holding / Position (E-04, book = ibor for intraday measures, book = abor for period-end), Classification Type & Value (E-11) for the sector and geography taxonomy, Asset Class (E-09); the SD-07.5 aggregated, look-through holdings.
• Owns: E-19 Risk Measurement on the risk_type = concentration partition — single-issuer / single-name exposures, sector / geography / asset-class concentrations, vintage-year concentration (private markets), top-N issuer / top-10 sector measures. SD-07.4 is the sole authoritative source for this partition; SD-07.7 consumes for consolidated reporting

Standards

• No single external standard governs concentration measurement; the Herfindahl-Hirschman index is the standard concentration metric, and regulatory and mandate concentration limits set the thresholds.

Open extensions

• The hand-off from SD-07.5 — look-through is the input mechanism, concentration the measurement-and-limit layer.
• Vintage concentration as the private-markets-specific operation.