The way the industry defines risk is a mistake and is more multidimensional than just the volatility in the price of an asset, Atrium Investment Management believes.
According to Atrium, the volatility and low growth in investment markets has exposed the shortcomings of many of the traditional asset management models and its definition of risk.
The firm’s chairman Chris Cuffe, said the definition was much more than the volatility in the price of an asset.
“I get sick to death of it because it’s really such a one dimensional look of what risk is and the reason why people do that is because you can measure it. You can see it on paper and launch it on a screen,” he said.
“It is multidimensional is and often very hard to define in numeric ways and there’s a lot of experience comes with understanding what risk is and risk to me is for an investor is the possibility of the permanent loss of capital, it’s not the possibility of prices going up and down in different durations over the short term.”
Atrium’s chief executive, Alex Hone, said it was a mistake that the industry took the view of risk as just benchmarking, tracking error, volatility, and all things from a fiduciary standpoint.
“At the end of the day for us it’s far more about understanding the intrinsic risk of an asset in not performing or expecting it to do over time,” Hone said.
With their portfolio, Atrium steers away from the traditional asset allocation with less equities and more alternatives to increase flexibility in risk management for a better outcome.
“A lot of firms define the way they approach or look at risk as risk to their shareholders as opposed to investors,” Cuffe said.
The firm said it achieves these outcomes through active investment management and focused asset diversification.
Hone said they defined risk factors as equity, alpha, illiquidity, currency, duration, interest rates, and credit.
