Maintaining a modern, multi-manager investment program is challenging in good times and can become overwhelming when markets behave badly. Sooner or later, there will be another correction and a subsequent recovery – it is the nature of risk-taking and markets. The alignment of portfolio risks poses several key questions:

  • Where do we turn for increased returns?
  • How much risk can we tolerate in reaching those returns?
  • Do we rely too much on equity-centric risks to generate returns?
  • How do we mitigate damage from wealth-destroying drawdowns?

Diligent risk control can allow for greater conviction in holding return-seeking assets without creating undue risk to the investment policy. This paper discusses three current themes demonstrating how an overlay program can be a critical tool for success.