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Strategic Risk Management: A Practical Guide to Portfolio Risk Management by David Iverson

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CHAPTER 1

Strategic Risk Management Framework

No one person can do everything required to run a fund well. Intermediaries are employed to act in the fund's best interests.

Board members, for example, are responsible for a fund's management and must consider the benefit of people whose money is in the fund. Also, the day-to-day investment management decisions typically are delegated to investment professionals other than the board members. When you consider the fund as a whole and those involved, the natural question becomes: “How do you best ensure the fund's objective is met with a high degree of confidence?” You could ask the question another way: “What are the key risks my fund faces, and how should I best manage them?” This question is central to all investment management activities.

This chapter deals with the first part of the question; the rest of the book deals with the second part.

ORGANIZING FRAMEWORK

What risks does my fund face? To answer this question, we need a way of thinking about the fund so we can identify the risks within it. Any fund can be thought of in terms of the types of decisions that can be made. This is shown in Table 1.1.

Table 1.1 Types of Decisions

Decision Level Decision Type
Fund Governance
Fund's purpose
Strategy Strategic asset allocation
Tactical asset allocation
Asset class structure
Implementation Manager selection
Security selection
Execution
Review Performance review/monitoring

Source: Based on Curwood (2007).

The ...

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