Key takeaways:
- Today’s total portfolio approach still relies on a static reference portfolio, so a fund’s risk drifts with markets. The next step is to start from a drawdown budget and manage total risk to it every day.
- What we see as a key advantage of the total portfolio approach is dynamic risk budget utilization – taking more risk when the opportunity set is rich, less when it isn’t, and knowing when to re-risk after losses.
- Compound returns should be a fund’s North Star: Long-horizon funds that plan for shocks can supply liquidity when volatility arises rather than be forced sellers. Managing this process requires quantitative talent, a crisis playbook, and a CIO who builds trust with the board.
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