Investment Portfolio Analytics and Risk Assessment
Successfully managing the risk/return profiles of bank, endowment, insurance company and fund investment portfolios requires experience and skills in equity, fixed income and structured product analysis, corporate finance, risk management and financial economics. Rutter Associates’ partners, affiliates and quantitative analysts apply these experiences and skills to helping chief investment officers and their teams achieve their objectives of maximizing return subject to limits on the likelihood of defined level of underperformance and loss. Rutter Associates also helps regulators, auditors and risk management teams to monitor and assess the effectiveness of policies and procedures in place to ensure that the investment portfolio is operating in a manner consistent with its stated purpose.
Investment Risk is the possibility that investment returns will fall short of expectations. This can occur due to changes in market conditions or to failures of people and processes. Rutter Associates recognizes that investment risk-taking needs to be managed or optimized and not minimized; efficient risk-taking is an input required to produce investment returns (a riskless portfolio will earn a risk-free rate, e.g., a Treasury yield).
Risk and expected return are to be balanced. The key risks on which Rutter Associates focuses in helping CIOs, CROs and regulators include:
Liquidity Risk: The inability to meet liabilities as they arise due to insufficient cash on hand and/or the inability to liquidate assets sufficiently quickly and without catastrophically adverse price effects when required.
Model Risks associated with valuing and analyzing complex assets and derivatives.
Asset/Liability Management Risk: the risk of loss due to risk parameter mismatches across the balance sheet. For example, if derivatives are used by the Chief Investment Officer to hedge optionality in variable annuities, are delta, gamma, and vega monitored and hedged within established guidelines?
Operational Risks(people, processes, systems)
- Are proper Policies and Procedures, Investment Guideline and Derivative Usage documents in place?
- Are risks and returns monitored and reported in a thorough and timely manner by qualified personnel and to appropriate Executive and Board committees?
- Are risks and returns quantified by market-accepted standards?
- Do investment and risk personnel fully understand risk/return profiles of assets (both those that are publically traded and private assets) and derivatives?
- Are investment management and risk management compensation schemes consistent with incentivizing desired behaviors and outcomes?
- Are investment management and risk management systems adequate for the tasks to which they are put?
Recent Representative Assignments
- Rutter Associates built and maintained a shortfall-risk-based portfolio model for the multi-billion dollar endowment of a major healthcare system.
- Rutter Associates reviewed the investment portfolio processes of a financial guarantor in run-off for a state insurance regulator.
- Rutter Associates reviewed the investment portfolio processes of a major life insurance company for a state insurance regulator.
- Rutter Associates presented the investment portfolio processes of a major life insurance company to rating company analysts to help achieve a positive ratings outlook for the company.