How do I manage the risks in my portfolio?
It’s an important question. According to a study by the National Association of College and University Business Officers (NACUBO), endowments and affiliated foundations had an average investment loss of 19% between July 1, 2008 and June 30, 2009. The 2008 financial crisis sent shockwaves through the institutional investor community calling into question traditional approaches to asset allocation and highlighting the importance of risk management.
In 2011, we developed the Cambridge Associates Risk Allocation Framework which is central to how we advise long-term investment pools. Our investment advisors employ the framework to gain a deeper understanding of how much and what kinds of risk you can take to earn the returns you need to meet your long-term liabilities.
These insights help to create appropriate policy allocations that tie your risk and return objectives more closely to long-term goals and shorter-term risk tolerances. Once we build or adjust your portfolio to meet these objectives, we actively monitor how different positions contribute to performance relative to the policy portfolio. This gives you an understanding of how assets relate to one another and how different decisions may offset each other. Understanding these relationships gives you insight into potential risks that could be introduced when allocations change.