Barrier #2: Poor Processes
We believe risk is a good or resource, not a “bad”. There’s a demand curve for risk and our risk budgeting process allocates the consumption of this risk “good” so that it adds the most value.
Our risk budgeting process obeys basic laws of economics, where the marginal consumption of risk is proportional to its marginal return, as well as being linked to investment goals and missions.
We evolve our processes, but not our focus, building on the pioneering work on risk budgeting at the Ontario Teachers’ Pension Plan, where Holland Park’s President (Valter Viola) worked for seven years under the leadership of Leo de Bever (former EVP of Research and Economics) and Robert (Bob) Bertram (recently retired Chief Investment Officer).
Read what Bob Bertram had to say about focus and processes on the right.
| “What About Bob?”
When Bob Bertram, the first Chief Investment Officer at the Ontario Teachers’ Pension Plan, retired last year he said that his greatest challenge and achievement were both risk-related.
Greatest Challenge:
“was, and always is, getting people to focus on managing the balance sheet. … do your best to match assets and liabilities before you try to add value.”
Greatest Achievement:
“integrated risk management compensation systems and portfolio management into a single set of measurements. Basically integrating our programs so they were centered on risk management and then tying the compensation system into the risk management budget.”
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