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Evaluation of Investment Strategies

The Situation: A need to monitor outsourced investment mandates

  • A family office had outsourced its asset management functions to a selection of investment managers with a brief to achieve long-term growth while preserving capital.
  • Independently, the family office wanted to actively monitor the capital preservation strategy in order to intervene if necessary.

The Challenge: Setting appropriate markers

  • We were asked to help the family office to set markers for their investment managers; these markers would signal when to reduce exposure to riskier assets and when to exit riskier assets altogether.

The Resolution: Detailed guidelines to ensure adequate safety net

  • Working with the family office, we established a detailed risk budget by asset class and set up a framework to monitor this process.
  • We based our approach on a ‘pay back’ or ‘safety net’ concept, focusing on the acceptable time frame under which a portfolio would be required to recover losses after a drawdown.
  • The family office were then able to set an overall risk limit, expressed as a function of the required recovery time.