Suite 506
Ardmore, PA 19003
Insight: Risk Comes from Not Knowing What You’re Doing
Warren Buffett made this observation at Berkshire Hathaway’s 2007 annual meeting. Yet for institutional investment offices, an equally important question is who is responsible for overseeing risk and portfolio construction.
A recent review of the institutional allocator market highlighted growing recognition of the need for top-down portfolio analysis to complement bottom-up investment decisions. While CIOs recognize the value, budget constraints, geography, and limited access to experienced candidates can make staffing difficult.
Our discussions with 10+ investment offices highlighted three findings:
- A dedicated hire is not the only path to building these capabilities
- The scope of responsibilities can justify a full-time role
- Independent oversight keeps the portfolio aligned with its objectives
A Dedicated Hire Is Not the Only Path to Building These Capabilities
Our interviews highlighted two pathways to staffing this role: a dedicated specialist or a hybrid professional whose portfolio-level responsibilities develop alongside other investment work or operational work.
Both require multi-asset class knowledge, analytical capabilities, and investment credibility, but differ in experience, independence, and scope. The table below illustrates how each model can succeed.
| Attribute | Dedicated, Senior-Level Role | Hybrid Role |
|---|---|---|
| Multi-asset class experience |
Broad experience across asset classes and portfolio-level risk management.
Example: A recruiter experienced in placing these professionals noted that investment offices generally favored candidates with multi-asset class exposure or direct investing experience over those whose backgrounds were limited to manager selection. |
Experience can develop over time, often transitioning from manager selection into portfolio-level analysis.
Example: One risk manager noted that public markets professionals may be well suited given their familiarity with factor analysis, access to data, and navigating market cycles. |
| Analytical & Quantitative Experience |
Independently identifies emerging portfolio risks, develops analytical frameworks, and translates findings into recommendations.
Example: Two institutions recently hired individuals with computer science or coding backgrounds; at one, the individual also leads AI adoption. |
Strong analytical capabilities and an interest in deep research, macroeconomics, and portfolio construction are essential.
Example: One CIO described being the one to define scope and design reporting – whereas the risk manager was the one to generate the report. |
| Communication & Investment Credibility | Established credibility to challenge investment teams and influence portfolio decisions. |
Credibility develops through CIO mentorship and direct engagement with asset class heads.
Example: One CIO described initially serving as the primary recipient of the analysis before encouraging asset class heads to engage directly with the individual. |
| Role structure | Dedicated responsibility for portfolio construction, risk analysis, specialized investment research, and strategic projects. | Combines portfolio-level analysis with manager coverage or, less commonly, COO / Director of Operations responsibilities. Some institutions gradually reduce manager coverage to create more capacity for risk management / portfolio construction. |
The Scope of Responsibilities Can Justify a Full-Time Role
The breadth of activities identified in our interviews suggests that portfolio risk and construction can constitute a full-time role. The six functions below can help investment offices define a newly centralized role or identify additional duties to consolidate under an existing one.
| Function | Key Activities |
|---|---|
| Asset Allocation & Portfolio Construction |
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| Liquidity Management & Pro Forma Reporting |
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| Scenario Analysis & Stress Testing |
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| Currency Hedging & Overlay Management |
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| Performance & Attribution |
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| Specialized Investment Research & Asset Class Oversight |
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Independent Oversight Keeps the Portfolio Aligned with Its Objectives
Investment offices emphasized the importance for an independent portfolio-level perspective—not only to complement bottom-up manager selection, but also to challenge decisions and uphold the portfolio’s agreed-upon objectives.
This independent oversight provides checks and balances beyond the CIO and individual investment teams. One former CIO established the role specifically for this purpose; at another institution, the board created a risk management position with Investment Committee voting authority.
Regardless of structure, success depends on a culture that values independent analysis and incorporates it into investment decisions.
We thank everyone who generously shared their perspectives and experiences and welcome your questions and feedback.
The Union Park Consulting Team