What do we mean by risk?
Risk means different things to different investors. Consider the examples below:
• The trustees of a final salary pension scheme are concerned primarily with the risk that the scheme’s investments may not keep pace with its liabilities.
• A fund manager may be monitored against a market index and therefore the risk of underperforming that index is the main focus.
• An absolute return manager aims to deliver positive returns regardless of market conditions. Therefore, the risk of delivering negative returns far outweighs any concerns regarding index-relative performance.
Understanding a fund manager’s approach to managing investment risk is an important ...