A day in the life of the modern investment risk adviser would surely frighten the living daylights out of those who went before in a similar role. In ancient times - that is, pre-Big Bang in October 1986 - the job could involve picking a stock or two to suit a client.
The stocks in question would then be locked away and the key stored somewhere safe for 40-50 years before being cashed in on maturity and the proceeds returned to the end investor, less of course several decades of fees.
Six impossible things before breakfast
Today it is all algo-driven high frequency trading, risk-on and risk-off and believing six impossible things before breakfast. The world before HFT and the global financial crisis looks positively bucolic, arcadian and idyllic.
Take a look at this recruitment video from Goldman Sachs in 1985 for a hint of the good old days. Though, it has to be conceded, there do seem to be a goodly number of people at work at 07.10h. Maybe that was seen as slacking even then.
Apart from anything else, look how long it is at 13m 41s and how slow it is. And how white. Does this bear any resemblance to current reality for the modern investment risk adviser working at Goldman Sachs or any of its rivals today?
Those green screens are...
For younger readers, by the way, those green screens are Reuters and Telerate machines showing where the Treasury market was trading. For older readers, see how many banking luminaries you can spot.
The job description for the modern investment risk adviser sounds terrifying to someone whose international banking career began in September 1979.
Explaining the different stages of risk assessment in brief
- identify your risk
- assess your risk
- monetise your risk
We are all investment risk managers now
The hard fact is that we all need to be our own investment risk managers today. As the FCA's recently published paper on the UK asset management industry reminds us, over three quarters of UK households are saving for, or receiving some kind of pension.
This includes over 9 million people saving for retirement through defined contribution (DC) pension schemes and approximately 1.4 million savers currently building up pensions in defined benefit (DB) pension schemes.
There are also around 11 million savers with investment products such and stocks and shares ISAs. These all rely on the services provided by asset management firms, whether directly or indirectly.
Investor bears all the risk
But the investor bears virtually all the investment risk. Are we qualified? No. Read the extensive job description replicated below and there is little doubt that you will find yourself nodding in agreement, briskly and often.
A typical day
What does the typical day in the life of an investment risk specialist involve? One such creature, who asked not to be identified in any way shape or form, replied as follows.
That very much depends, based on
- the underlying investment strategy
- exactly what is done each day every day versus
- what is done ‘up front’
- and then only revisited when there is a big enough market swing to throw off net asset value and possibly alter the risk level of that particular security
Some days there is nothing
Some days there is absolutely nothing that needs to be done to re-steer ‘risk management’ for a portfolio. Another day might include for example the second stage analysis of a potential addition to the portfolio.
In this case, an investment risk specialist might run an 83-factor forensic analysis (of which clients and accredited investor prospects will be aware). This is then used to assign his firm’s risk/return grading/ranking for a stock.
Those that make the top 20% are potential longs and those in the bottom 20% are potential shorts. After this, day-to-day monitoring of potential change in risk at the company-specific level is less work than goes into the front end.
In contrast, he notes, there are some top down macro managers, who do short-term trading. They will follow event-driven, breaking news and do ‘turn on a sixpence’ switching in day-to-day trading.
That’s a dramatically different way to run a portfolio, says our masked adviser.
Billy enjoys the job
M Damian Billy, Founder/CEO of Chicago-based Econophy Capital Partners LLC (pending name change to The Econophy Group) says he enjoys a job that gives him the freedom and flexibility to explore inventive strategies to achieve the company's goals.
He says his focus is on creating a hybrid approach to private equity that is vastly different from the standard 75-year-old model. “We keep asking ourselves how do we distinquish it as equity stakeholders and as a product-offering speciality firm,” he says.
From a helicopter view he focusses on the financial technology) evolution to source select companies for taking an equity stake. The aim is to build a platform of five to seven companies with technology applications that are natural valuation catalysts.
Organically grown preferred
“We prefer organically grown ventures/companies that are not previously funded by venture capitalists and whose current C-level executives are forward-thinking individuals,” he says.
From a worm's-eye view, the process requires a combination of objective perspectives related to assessing operating numbers. The goal is to set an enterprise value that makes sense from a fundamental perspective, not an illogical current market environment metric.
Of equal and many times greater in scope is to determine the culture of the firm. Are its executives willing to embrace change? Does it function as a team or work in a silo mentality? Does the next C-level promotion come from within or is an outsider required?
A question of pragmatism
What is the method of allocation that recognises the success to date, yet provides an incentive to achieve 3X-5X original investment over the next five years? Is the PE candidate pragmatic regarding performance, market outlook, competition, regulatory issues, etc.