Risk Management

What do the Cable Television and Hedge Fund Industries Have in Common?

Posted by David Scarozza on Feb 28, 2017

Topic: Asset Allocation Hedge Funds Investment Strategy Risk Management

These industries may seem an odd pairing, but both are in the midst of a disruption-led, industry-wide rationalization process. The two industries share in common a historically evolved “bundling” price structure, heavily favoring the sellers, that is breaking down due to the recent proliferation of distribution alternatives. This is giving consumers the option to be far more choosey about the prices they are willing to pay for varying levels of content.

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Active vs. passive: There is no debate

Posted by Mark J.P. Anson, Chief Investment Officer, Commonfund on Jan 31, 2017

Topic: Asset Allocation Equities Fixed Income Investment Strategy Risk Management

Like King Kong vs. Godzilla, the investment debate of active vs. passive continues. I really enjoyed those cheesy old movies from Japan that pitted the two big monsters of science fiction. But as I recall, there was never a clear winner: Sometimes King Kong won the battle, sometimes Godzilla.

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Does Your Investment Policy Statement Account for Risk?

Posted by Bill Jarvis, Executive Director, Commonfund Institute on Jan 20, 2017

Topic: Governance and Policy Industry Knowledge Investment Strategy Risk Management

In the past, many investment policy statements gave relatively cursory treatment to risk, its quantification and its potential impact on the asset pool. Market collapses and credit crises demonstrated that many institutions’ portfolios carried unacknowledged risks, that their risk profiles in general were higher than they thought, and that the risk tolerance of their fiduciaries was lower than acknowledged. Today, then, it is entirely appropriate to put risk at the top of the process of investment policy development.

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Real Estate Credit Environment: Risk Off – Risk On

Posted by Paul Von Steenburg, Managing Director, Commonfund on Jan 9, 2017

Topic: Asset Allocation Real Estate Risk Management

Earlier last year real estate markets received a scare as CMBS spreads widened, particularly in lower-rated and more junior tranches. Additionally, one of the most respected U.S. real estate research firms predicted outright price declines for the asset class in 2016. While credit conditions have tightened, particularly for construction financing, wider scale credit concerns have largely dissipated and CMBS spreads have tightened.

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Quant Corner: Understanding Active Risk and Tracking Error

Posted by Jess Gaspar, PhD, Managing Director, Head of Quantitative Research on Nov 7, 2016

Topic: Asset Allocation Investment Strategy Quant Strategies Risk Management

Investors frequently focus on the total return they experience in their portfolios. In periods when absolute returns are high, they feel good; in periods when absolute returns are low, they feel bad. Yet good performance and bad performance should not be evaluated in a vacuum, they should be evaluated relative to the risks undertaken in their portfolios.

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Commonfund Roundup
06-29-16

Posted by Commonfund on Jun 29, 2016

Topic: Asset Allocation Governance and Policy Industry Knowledge Investment Strategy Market Commentary Responsible Investing Risk Management

In this month’s Commonfund Roundup, active management and risk are leading topics. Featured articles include: an interview in Institutional Investor with CEO, Catherine Keating, where she discusses the active-versus-passive debate and more; and “Active Management Fatigue and What to Do About it,” co-authored by Kristofer Kwait, Head of Investments; Jess Gaspar, Head of Asset Allocation and Research; and John Delano, Head of Analytics. Also included, the new white paper, "Striking the Balance: A Fiduciary Approach to Risk and the Investment Policy"; the latest weekly economic podcasts and more.

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Top Ten Risks for Practicing CIOs

Posted by Bruce Zimmerman, CEO and CIO, University of Texas Investment Management Company and Commonfund Trustee on Jun 8, 2016

Topic: Governance and Policy Risk Management

A Chief Investment Officer’s primary responsibility is to identify and clearly communicate his/her portfolio’s risks to his/her Board, Investment Committee and/or client(s). About eighteen months ago, the University of Texas Investment Management Company (UTIMCO) developed a ten item framework to help with this responsibility. Read more from CEO and CIO of UTIMCO, Bruce Zimmerman.

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Risk and Investment Policy Approaches

Posted by Brett Lane, Managing Director | Bill Jarvis, Executive Director, Commonfund Institute | Dana Moreau, Chief Risk Officer, Commonfund on Jun 1, 2016

Topic: Governance and Policy Investment Strategy Risk Management

Our new whitepaper, Striking the Balance, challenges the traditional risk/return paradigm. Listen to our webcast hosted by Brett Lane for an overview from Bill Jarvis, Executive Director of Commonfund Institute on the key findings from the paper and our Chief Risk Officer, Dana Moreau on a risk-based investment structure.

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Operating Charity Implements Risk-Based Investment Policy

Posted by Bill Jarvis, Executive Director, Commonfund Institute on May 31, 2016

Topic: Governance and Policy Industry Knowledge Investment Strategy Risk Management

Operating charity in the Northeast is in the process of implementing a risk-based investment policy for its $30 million endowment. The seven-member investment committee is comprised of individuals with experience at leading securities and investment firms. In drafting its IPS, the committee created a separate section entitled "Risk Tolerance"...

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Striking the Balance: A Fiduciary Approach to Risk and Investment Policy

Posted by Commonfund Institute on May 31, 2016

Topic: Asset Allocation Governance and Policy Investment Strategy Risk Management

In formulating an investment policy, fiduciaries frequently treat risk as an output of portfolio construction and asset allocation processes, giving priority to return objectives. Fiduciaries would do better to acknowledge risk as a primary input which guides and constrains those charged with institutional governance and investment policy formulation. Download this paper to help determine practical methods to assign risk when formulating an investment policy for your institution.

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Commonfund Roundup
05-31-16

Posted by Commonfund on May 31, 2016

Topic: Asset Allocation Governance and Policy Industry Knowledge Risk Management

This month's Commonfund Roundup features a webcast of Catherine Keating on the panel, "Thematic Investing and Portfolio Strategies: Betting on the Megatrends", at Milken Institute's Global Conference; Mark Anson and Ryan Driscoll's article, "Unhedged Commentary: The $3 Trillion Question," published in Institutional Investor’s Alpha; Commonfund Forum Spotlights, "The Big Picture: Integrating Investments, Finance and Development" and "Ideas for Next Gen Energy Investing"; along with the latest economic pod casts and more.

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Defining Investment Success for Endowments and Foundations

Posted by Bill Jarvis, Executive Director, Commonfund Institute on May 16, 2016

Topic: Governance and Policy Industry Knowledge Investment Strategy Risk Management

William Jarvis of the Commonfund Institute explains how the investment horizons and objectives are different for endowments and foundations as opposed to retail investors. He highlights the tax exempt status of these organizations as one of the biggest drivers of investment philosophy.

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Investment Management
Principle 5: Risk Management

Posted by Commonfund Institute on May 3, 2016

Topic: Governance and Policy Industry Knowledge Investment Strategy Risk Management

In this installation of Commonfund's 7-part series of Principles of Investment Management, we will review Principle #5: Risk Management. Risk can be defined broadly as anything that can result in the objectives of the portfolio not being met. The process of risk management seeks to enable fiduciaries to make the best possible investment decisions in the face of uncertainty and to maximize the likelihood that your portfolio objectives will be achieved.

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Commonfund Roundup
05-02-16

Posted by Commonfund on May 2, 2016

Topic: Asset Allocation Governance and Policy Industry Knowledge Risk Management

This month's Commonfund Roundup features our latest Partner Page for OHSU Foundation; Commonfund Forum Spotlight, Emerging Markets: Balancing Risk and Reward; Mark Anson's latest article, "Asset Allocation with Private Equity," published in the Journal of Investment Consulting; along with the latest economic pod casts and more.

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Emerging Markets:
Balancing Risk and Reward

Posted by Dana Moreau, Chief Risk Officer, Commonfund | Geoff Colvin, Senior Editor-at-Large, Fortune Magazine | Cate Ambrose, President and Executive Director, Latin American Private Equity and Venture Capital Association | Kun Deng, Managing Director, Lazard Asset Management | Jui Tan, General Partner, BlueRun Ventures China on Apr 13, 2016

Topic: Asset Allocation Industry Knowledge Investment Strategy Risk Management

Investors poured $2 trillion into emerging economies between 2009 and 2014. Then prices for a basket of commodities fell—dragging crude oil down to levels not seen in a decade and dashing investors’ hopes at the same time. What now?

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Is Currency an Asset Class?

Posted by Mark J.P. Anson, Chief Investment Officer, Commonfund on Mar 29, 2016

Topic: Governance and Policy Investment Strategy Risk Management

Currency risk can best be described as the surprise impact that currency exposure has on an investment portfolio. Although currency risk typically confounds investors, it is easy to measure – it is the difference in the return to an unhedged portfolio position versus that portfolio position hedged back to the investor’s domestic currency. So simple to measure, yet so difficult to figure out.

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Commonfund Roundup
03-29-16

Posted by Commonfund on Mar 29, 2016

Topic: Asset Allocation Governance and Policy Industry Knowledge Risk Management

This month's Commonfund Roundup includes the results of the Commonfund Investor Outlook Survey™, Commonfund Forum Spotlights, Sal Khan, Education Reimagined webcast, along with the article, Rethinking Risk and Diversification; the latest economic pod cast and more.

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Rethinking Risk and Diversification

Posted by Mark J.P. Anson, Chief Investment Officer, Commonfund | Catherine Keating, President and Chief Executive Officer, Commonfund | Bruce Zimmerman, CEO and CIO, University of Texas Investment Management Company and Commonfund Trustee on Mar 23, 2016

Topic: Asset Allocation Industry Knowledge Investment Strategy Risk Management

Asset allocation is still the foundation on which better risk-adjusted returns are built. But asset allocation has changed, along with all the associated tools for pursuing return and managing risk. Have you kept up?

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Xchange Webcast: Risk, Return and Volatility

Posted by Mark J.P. Anson, Chief Investment Officer, Commonfund | Brett Lane, Managing Director on Mar 22, 2016

Topic: Asset Allocation Equities Fixed Income Investment Strategy Market Commentary Risk Management

Xchange Webcast: Risk, Return and Volatility with Chief Investment Officer Mark Anson

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Indecent Exposure – Counterparty & Currency Implications of an Unstable Europe

Posted by Dana Moreau, Chief Risk Officer, Commonfund | Brian Rondeau, CFA, Director, Risk Management on Feb 23, 2016

Topic: Risk Management

A lot of attention has been paid to European banks in the last few weeks -- and for good reason. From January 1st to February 11th, the European banks sub-sector of the Euro Stoxx 600 lost over a quarter of its value. Looking back to the highs of the summer, the peak-to-trough move was closer to -40 percent. Despite a recent relief rally, several signs of stress remain.

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The Enemy of my Enemy is My Friend

Posted by Michael Strauss, Chief Investment Strategist and Chief Economist | Ryan Driscoll, CFA, Director on Nov 20, 2015

Topic: Market Commentary Risk Management

Leaving work a week ago Friday it was hard to envision a scenario where the risk markets would rebound sharply at the beginning of this week. China doubled margin requirements on November 13th as their mar-kets closed. The S&P 500 definitively ended a bad week for domestic equities and gave back almost all of its gains for 2015. Finally, as everyone was heading out for the weekend, Paris became the next victim of a series of coordinated terrorist attacks that claimed the lives of over 125 people. Unfortunately these acts of violence have become commonplace. However, this happening in Paris,

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The Curious Case of Risk Exposures

Posted by Jess Gaspar, PhD, Managing Director, Head of Quantitative Research | Suresh Iyer, CFA, PhD, Director, Quantitative Research on Oct 30, 2015

Topic: Asset Allocation Quant Strategies Risk Management

Our research at Commonfund has found that a 70/30 stock/bond portfolio has north of 99 percent of its risk, as measured by standard deviation, allocated to equities. Thus, portfolio risk typically is not broadly diversified across equities and fixed income, but rather, highly concentrated in one exposure: equities. Does a more diversified portfolio, such as a typical endowment portfolio, do a better job of balancing risk?

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Grasping at Straws When Reaching for Yield?

Posted by Alec Rapaport, Managing Director, Head of Fixed Income Strategies on Sep 24, 2015

Topic: Fixed Income Risk Management

It feels a little like the movie Groundhog Day, where Bill Murray wakes up in Punxsutawney, PA, repeatedly reliving the same day. As in the movie, the overwhelming cycle of fear and forgetfulness seems to be playing out once again in the credit markets. Globally, central banks have adopted policy stances which offer investors negative real yields on deposits. Money is not a store of value and investors have the privilege of paying others for its ‘safekeeping’. Investors have been desperate for yield and we cannot help but ask: are they grasping at straws?

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Quant Corner: What color is the little red schoolhouse?

Posted by Jess Gaspar, PhD, Managing Director, Head of Quantitative Research on Aug 17, 2015

Topic: Quant Strategies Risk Management

Welcome to the first installment of Quant Corner - where we take a closer look at investing and share insider tips, tricks from the trade, and break down common investing myths. Which brings us to the first topic: Dollar allocations ≠ risk allocation.

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Defining Risk For Your Organization

Posted by David Belmont, CFA, Chief Risk Officer on Aug 17, 2015

Topic: Risk Management

Asset/liability management, widely used in the pension and banking industries, is an effective form of risk management that endeavors to mitigate or hedge the risk of failing to meet institutional obligations.

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Quant Corner – Dollar allocation ≠ risk allocation

Posted by Jess Gaspar, PhD, Managing Director, Head of Quantitative Research on Aug 17, 2015

Topic: Industry Knowledge Risk Management

DOES A 70/30 PORTFOLIO HAVE 70 PERCENT OF ITS RISK IN EQUITIES? While this question may appear to channel the old joke ”Is the little red schoolhouse red?”, the answer is clearly that a 70/30 portfolio does not have 70 percent of its risk in equity. In fact, it has nearly 100 percent of its risk in equity. This first installment of Quant Corner explains why that is the case, and why investors should resist the temptation to move away from a fully diversified portfolio.

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Redefining the risk waterfall

Posted by David Belmont, CFA, Chief Risk Officer on Aug 17, 2015

Topic: Industry Knowledge Risk Management

Mission-based organizations may get a more complete grasp on risk and its implications by approaching risk from the perspective of asset/liability management and by structuring their risk management activities around specific time frames.

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Greenhouse effect

Posted by Bill Jarvis, Executive Director, Commonfund Institute on Aug 17, 2014

Topic: Industry Knowledge Risk Management

In the last five years, as world markets have recovered from the global financial crisis, institutional portfolio returns have generally been strong. While many factors have played a part in this scenario, historically low interest rates and accommodative monetary policies on the part of the Federal Reserve and the European Central Bank—an artificial environment like that of a greenhouse—are among the main causes for the high equity market returns of the last few years.

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Viewpoint: Looking Modern and Sharpe

Posted by Bill Jarvis, Executive Director, Commonfund Institute on Jul 7, 2014

Topic: Governance and Policy Industry Knowledge Risk Management

Every fiduciary knows that risk-taking is an unavoidable part of investing. But how can fiduciaries think usefully about risk in the context of their role as guardians of their institutions’ funds? This question is particularly urgent in the current financial and economic environment, which since early 2009 has been strongly influenced by the policies of the leading central banks, notably the Federal Reserve. The banks’ policies of keeping interest rates extremely low and providing liquidity to the market have supported a broad resurgence in public equity prices in the U.S. and Japan. Although the recovery has seen some pauses and retrenchments as each market has reacted in its own way to the central banks’ policies, the overall direction of prices has been strongly upward.

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Assessing Your Board’s Risk Tolerance

Posted by Bill Jarvis, Executive Director, Commonfund Institute | John Griswold, Founder and Senior Advisor, Commonfund Institute on Jun 2, 2014

Topic: Governance and Policy Industry Knowledge Investment Strategy Risk Management

In the wake of the financial crisis, trustees of many endowed nonprofit institutions realized that their portfolio was riskier than they thought and their own ability to tolerate loss wasn’t as strong as they imagined. What can board and investment committee members do to improve their ability to assess their risk tolerance?

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Risk: the fuel that generates portfolio returns

Posted by David Belmont, CFA, Chief Risk Officer on Apr 12, 2014

Topic: Industry Knowledge Risk Management

In a broad sense, how should nonprofit institutional investors think about investment risk and risk management? Just about every nonprofit will answer that question somewhat differently; what is a considerable risk for one organization may be less of a concern for another. Large nonprofits may have a chief risk officer; at smaller and mid-sized organizations, investment risk management is the responsibility of the board, investment committee and senior staff members. For organizations whose mission is investment management, risk and risk management take on a wholly different complexion and level of complexity. Still, there are commonalities that may help even the smallest of institutional investors conceptualize an approach to risk management that is workable and effective.

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Viewpoint: Looking Modern and Sharpe – Study of Endowments

Posted by Bill Jarvis, Executive Director, Commonfund Institute on Jan 12, 2014

Topic: Governance and Policy Industry Knowledge Risk Management

Every fiduciary knows that risk-taking is an unavoidable part of investing. But how can fiduciaries think usefully about risk in the context of their role as guardians of their institutions’ funds? This question is particularly urgent in the current financial and economic environment, which since early 2009 has been strongly influenced by the policies of the leading central banks, notably the Federal Reserve. The banks’ policies of keeping interest rates extremely low and providing liquidity to the market have supported a broad resurgence in public equity prices in the U.S. and Japan. Although the recovery has seen some pauses and retrenchments as each market has reacted in its own way to the central banks’ policies, the overall direction of prices has been strongly upward.

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Subscribe & Manage Your Frequency to Insights Blog

Posted by Commonfund on Jan 5, 2014

Topic: Asset Allocation Equities Fixed Income Governance and Policy Hedge Funds Industry Knowledge Market Commentary Operating Assets Outsourced Investing Partners People Private Capital Quant Strategies Responsible Investing Risk Management

Subscribe to the Insights Blog from Commonfund to stay informed with the latest information for nonprofit investors and the public sector.

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A Risk Management Assessment: Is a Breakup of the EU Inevitable?

Posted by Commonfund on Nov 21, 2011

Topic: Market Commentary Risk Management

Once considered taboo, leaders in Europe are contemplating changes in the structure and make-up of the Eurozone. Debt problems, and the challenges of dealing with them, have rattled the financial markets for months and most expect volatility to be the norm for some time to come.

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Holistic Risk Management for Perpetual Portfolios:
Keeping an Eye on What’s Important

Posted by Commonfund on Jan 15, 2008

Topic: Governance and Policy Industry Knowledge Risk Management

Risk management is inseparable from the investment process. Investment theory and practice both teach that without the assumption of risk by an investor there can be no possibility of return. This paper describes and analyzes the various types of risk ...

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