Unity’s Risk Framework
- Unity Investments
- Apr 28, 2025
- 2 min read
Updated: Aug 22, 2025
Take control of your future-start building a robust risk framework today!
Our clients asked:
Can you describe the risk framework Unity investments employs in its investment process?
Response:
In terms of risk, we have a slightly different understanding than most funds. We divide risk into three categories:
known,
known-unknown, and
unknown-unknown. Known risks are all the risks that we can mitigate against – risk of default, risk of fraud, risk of delayed payment – usually through a combination of running the proper third-party checks (background, credit, title, Letters of Good Standing, etc), negotiating loan terms, and having a strong security and collateral package.
Known-unknown risks are risks that we know, but we do not know the extent or magnitude of the risks. A good example is the current trade war between China and the U.S. We know that the trade war can result in a recession, but we do not know how deep the recession will go. We hedge against known-unknown risks by only lending to companies with resilient business models and overcollateralizing. For collateral, we need to ensure that 1) the loans are diverse in number, industry, and geography, 2) our LTV is conservative enough to withstand exogenous shocks, and 3) our collateral is dynamically valued and protected through ongoing third-party monitoring.
Unknown unknown risks are risks that we do not know before they happen. COVID was a great example of an unknown-unknown risk. It was the first time that the world was shut down. It has never happened before. The best tool available to us to deal with unknown-unknown risks is to control duration. We either keep the total duration short or we build in refinancing windows in a lending facility. For example, we can make a company refinance every 6 months if we amortize the loan starting in month 7. These liquidity windows give us the flexibility to change our minds and exit should we need to.
It’s these questions that helps us provide “life, compounded! “
