PORTFOLIO RISK MANAGEMENT AT BHP BILLITON

Abstract

BHP Billiton has implemented a portfolio risk management strategy. The strategy is based on extensive quantitative analysis of the risks and opportunities in the BHP Billiton portfolio and applies leading financial markets thinking to a portfolio of natural resource assets. It enables BHP Billiton to more rigorously manage the risks within its portfolio.

This paper will discuss the portfolio modelling process supporting Portfolio Risk Management. The process involves detailed modelling of changing financial markets (i.e. commodities, currencies, interest rates), the implications for the financial strength of the company (i.e. interest cover, liquidity profile, credit rating, gearing) and, ultimately, the implications for the business strategy (i.e. financial targets, growth aspirations, capital investments, acquisitions, share buybacks). This will illustrate how quantitative tools become building blocks for decision making beyond the market risk strategy and strengthen capital disciplines.