Risk Management & Reporting

Risk Management & Reporting #

Risk management is a core discipline in any family office investment framework. It ensures that the portfolio aligns with the family’s objectives, risk capacity, liquidity needs, and long-term mission. Effective risk reporting provides a clear, consolidated view of exposures, performance drivers, vulnerabilities, and stress scenarios—supporting informed decision-making by the investment committee and family stakeholders.

Context & Importance #

UHNW portfolios often span multiple banks, managers, strategies, and asset classes, including private equity, real estate, hedge funds, venture capital, and direct investments. Without a structured risk framework, families face hidden exposures, duplication, liquidity mismatches, leverage risks, and unforeseen drawdowns. Risk management integrates measurement, monitoring, governance, and reporting across the entire wealth ecosystem, not just the marketable portfolio.

Core Components #

• Risk appetite & capacity: Explicit definitions of acceptable drawdowns, volatility, liquidity, and leverage.
• Risk taxonomy: Market, credit, counterparty, liquidity, operational, geopolitical, and ESG risks.
• Measurement tools: Volatility, value-at-risk (VaR), beta, factor exposures, tracking error, stress tests.
• Liquidity management: Mapping of liquidity tiers, redemption terms, capital calls, and cash-flow scenarios.
• Look-through reporting: Aggregation of exposures across managers, funds, and underlying holdings.
• Counterparty oversight: Monitoring concentration and creditworthiness of banks, custodians, and fund managers.
• Operational risk controls: Processes, cybersecurity, segregation of duties, and vendor oversight.

Risk Reporting Framework #

• Portfolio snapshot: Allocation by asset class, sector, geography, liquidity, and currency.
• Performance attribution: Identifying drivers of returns and underperformance.
• Liquidity dashboard: Redemption terms, lockups, unfunded commitments, and near-term obligations.
• Stress scenarios: Rate shocks, equity sell-offs, currency devaluations, credit events, and inflation regimes.
• Risk-adjusted metrics: Sharpe ratio, Sortino ratio, downside deviation, drawdown analysis.
• Manager-level reporting: Style drift, benchmark deviations, leverage, and concentration limits.

Implementation & Best Practices #

• Codify risk policy: Include limits, triggers, escalation protocols, and governance structures.
• Integrate data sources: Consolidate positions across custodians, fund administrators, and private investments.
• Use independent risk tools: Avoid relying solely on bank-provided reporting; use third-party systems where appropriate.
• Monitor liquidity proactively: Align with capital call pacing and lon