Strategic Risk Management: Designing Portfolios and Managing Risk

Meer over het boek

Risk management has gained prominence, especially following the global pandemic that disrupted equity markets. Despite its critical importance, it often remains an overlooked aspect of investment strategy, with portfolios created and then passed to risk management teams without further consideration. This book offers a new perspective by advocating for the integration of investment and risk processes, a method that has proven successful for Man Group, one of the largest publicly listed hedge fund companies. The market downturns, particularly during the early months of 2020, highlight the need for effective risk management, yet it is typically only after such crises that investment strategies are reassessed. A common practice involves separating the investment management team from the risk management team, which can lead to reactive risk reduction measures. Instead, we propose that risk management be embedded within the portfolio design itself, a concept we call strategic risk management. This framework includes essential elements such as defensive strategies, drawdown risk controls, volatility targeting, and the timing of rebalancing trades. Drawing from our research, we evaluate how our strategies performed during the recent market drawdown, providing insights into effective risk management practices.