Risk Overlays
Risk is uncertainty. Risk is uncertainty. With the Dot Com bust and recent financial crisis, there has been an erosion of confidence in asset allocation alone to manage risk and uncertainty. As we reach new highs, market participants are looking beyond asset allocation for risk management solutions that provide plans with real choices about the level of risk to take with the returns that have been earned.
It has taken the Dot Com bust and financial crisis for market participants to begin to look beyond asset allocation for a more holistic risk management solution. We believe that Risk Overlays share a co-seat with asset allocation as part of a holistic risk management solution. The adoption of Risk Overlays by trustees and consultants is done mainly to restore confidence and control to the investment process. By allowing boards to assert meaningful control over the level of risk within a plan, Risk Overlays enhance asset allocation. Whereas asset allocation by default is a constant risk strategy that is not responsive to the markets current level or obtainment of enterprise objectives by plan sponsors.
Risk Overlay strategies are customized as an overlay on top of an equity portfolio or underlying asset. The intent of a Risk Overlay is to provide a mechanism for Risk Governance allowing boards and consultants to make risk decisions and take action to lessen, neutralize, and/or increase the sensitivity of a portfolio to a directional move.
Risk is uncertainty. Risk is uncertainty. With the Dot Com bust and recent financial crisis, there has been an erosion of confidence in asset allocation alone to manage risk and uncertainty. As we reach new highs, market participants are looking beyond asset allocation for risk management solutions that provide plans with real choices about the level of risk to take with the returns that have been earned.
It has taken the Dot Com bust and financial crisis for market participants to begin to look beyond asset allocation for a more holistic risk management solution. We believe that Risk Overlays share a co-seat with asset allocation as part of a holistic risk management solution. The adoption of Risk Overlays by trustees and consultants is done mainly to restore confidence and control to the investment process. By allowing boards to assert meaningful control over the level of risk within a plan, Risk Overlays enhance asset allocation. Whereas asset allocation by default is a constant risk strategy that is not responsive to the markets current level or obtainment of enterprise objectives by plan sponsors.
Risk Overlay strategies are customized as an overlay on top of an equity portfolio or underlying asset. The intent of a Risk Overlay is to provide a mechanism for Risk Governance allowing boards and consultants to make risk decisions and take action to lessen, neutralize, and/or increase the sensitivity of a portfolio to a directional move.