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High-yield portfolio: composition of portfolio by rating, 2003–2005
2005
2004
2003
5%
BB+
4% 4%
BB+ BB
0
As at 30 December 2005, the high-yield portfolio was dominated by positions in rating
category B (59 %).
Bank Austria Creditanstalt has invested in hedge funds through its subsidiary Bank Austria
Cayman Islands since 1999. In the years before 2005, apart from equity investments and
debt finance, more than half of these investments were convertible arbitrage strategies.
In 2005, investments were more widely diversified, at the expense of convertible arbitrage.
However, market-neutral and event-driven strategies still account for the highest proportion
of total volume. The proportion of directional strategies is low compared with the
industry average, and the applied leverage is also limited at a comparatively low level.
The investment guidelines, which define major risk parameters, are an important
management tool in this sector. Compliance with the investment guidelines and daily
reviews of valuation results are ensured by the risk management unit at Bank Austria
Cayman Islands within central risk management guidelines laid down in Vienna.
In 2005, in addition to the hedge fund activities on Cayman Island, Bank Austria Creditanstalt
again invested in hedge funds as part of its equity trading operations. With these
investments, which were primarily driven by equity long/short strategies, the BA-CA
Group aims to better diversify equity-related activities, thereby complementing the focal
areas in Austria and the CEE countries. Investment decisions are prepared by a hedge
fund research team of CA IB. This business is conducted within guidelines defining
standards in respect of maximum investment, investment diversification, relative size of
holding in the fund, and strategy. The positions are integrated in the risk calculations of
Bank Austria Creditanstalt and are monitored on an ongoing basis.
Bank Austria Creditanstalt’s risk model is subjected to daily backtesting in accordance
with regulatory requirements. The model results are compared with changes in value on
the basis of actually observed market fluctuations. As the number of backtesting excesses
(negative change in value larger than model result) has been within the “green zone”
ever since the model was introduced, the multiplier need not be adjusted. In 2005, one
backtesting excess was recorded.
158 Risk report
5% 2% 15%
BB+ BB
BB–
15%
BB–
9%
BB–
10%
B+
12%
B+
19%
B+
13%
B
15%
B
32%
B
36%
35%
20 40 60 80 100
B–
B–
27%
B–
19%
CCC+
16%
CCC+
1%
CCC
2%
CCC
4% 1%
CCC+ CCC
Capital requirements for
market risk