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The majority of family enterprises do not have a full time risk manager, and as a result we frequently see “siloing of risk” by boundaries such as family business, family office, family branch, family investment interests, or by accountability of decision making. Managing risk in silos has prevented family enterprises from understanding their total risk and developing an integrated insurance and risk management plan.
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For years, families of significant wealth and their advisors have limited their definition of risk management to the traditional dimensions of investment performance and insurance risk. Owners and advisors of wealth must recognize that a larger, more comprehensive view of risk management is necessary to preserve assets – human, intellectual, social and financial – for multiple generations.
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In this paper, the author argues that investment managers make a mistake if they try to focus on achieving high returns or high risk-adjusted returns and are likely disappointing investors in the long run. Instead, he argues that investment management should focus almost exclusively on managing the risks of an investment portfolio; above average returns will be a natural outcome of a proper risk management process.
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Risk Revisited

Howard Marks (Oaktree Capital)

Howard Marks from Oaktree Capital argues against the purported identity between volatility and risk. Volatility is the academic’s choice for defining and measuring risk, but it falls far short as “the” definition of investment risk. What investors really fear is the possibility of permanent loss. Of course, the problem with defining risk as the possibility of permanent loss is that it lacks the very thing volatility offers: quantifiability. The probability of loss is no more measurable than the probability of rain.
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A Better Way to Measure Risk Tolerance

Joe Tomlinson (Advisor Perspectives)

In building financial plans, it is critical that asset-allocation recommendations recognize the client’s ability to absorb risk. To aid in this assessment, advisors often utilize risk-tolerance questionnaires, but these tools have shortcomings. It’s as if the rational Dr. Jekyll fills out the questionnaire, but the emotional Mr. Hyde controls the investing. Better questionnaires are needed, and even that alone may not be enough.
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