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Family Wealth Management: Seven Imperatives for Successful Investing in the New World Order by Tom McCullough, Mark Haynes Daniell

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Chapter 11

Comprehensive Risk Management

The economic environment over the past decade provided most wealthy families with an unwelcome education about risk.

The global financial crisis, financial setbacks, the destabilization within many countries and currencies, terrorism, and natural disasters have all served to remind investors of the uncertainties and risks for which they need to be prepared.

Following the capital market and economic events of 2000–2001 and 2008–2009 in the United States, and the following euro crisis in 2011–2012, risk has become a major concern for family investors. Even many hedge funds, which were specifically designed to resist correlation with equity markets and protect against downside risk (by having a short component), got caught up in the upside zeitgeist and performed poorly during the most recent market downturn.

In addition to recent damage to family portfolios, there are three major reasons for the current attention being paid to the identification and management of risk to family wealth and well-being.

1. Global risks and volatility seem to be larger than ever and risk profiles seem more likely to increase than decrease in the future.
2. The tools used in the past to manage those risks have not been working, leaving investors to try to find new ways to understand and mitigate risk.
3. There is good reason to believe that the nature of risk is changing and that the probability of occurrence of negative outcomes will increase and the scale of ...

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