When it comes to institutional fund management, it’s important that all trustees understand their fiduciary responsibilities and the risks that could impact the success of that fund. According to Jeffrey Scott, chief investment officer at Wurts & Associates, a risk dashboard is commonly put in place in large organizations to map out these risks.
But when Scott joined the Alaska Permanent Fund—a $40 billion fund established through that state’s oil royalties, and from which every Alaska resident receives an annual dividend—in 2008, he discovered that a fully developed risk dashboard wasn’t in place.
“The dashboard had dollar allocations to asset classes and to managers. And that was about the gist of it,“ He explains. “The reality is there are a multitude of risks in running a $40 billion global fund. They had some very sophisticated assets, but I wasn’t convinced that the board members really had good visibility into what the risks were in the portfolio.”
From there, says Scott, the fund undertook a long process of educating trustees around the types of risk they might face, and a complete risk dashboard was developed.
“Now at every board meeting, instead of spending an hour and a half on what the manager’s returns were, they spend 60 to 90 minutes looking at all the different components of risk in the portfolio.”