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Alternative Market Briefing

Understanding differing dimensions of risk is crucial say Roundtable participants

Wednesday, January 23, 2013

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Daniel Ades
By Beverly Chandler, Opalesque London:

Participants at the Opalesque Florida Roundtable, sponsored by Eurex and Wells Fargo Insurance Services, discussed the dimensions of risk in a portfolio, and how they are interlinked.

Daniel Ades, partner at Kawa Capital Management commented that the risk dimension is as fundamental to portfolio construction as risk/reward. "People have different perceptions of risk, and I believe it is helpful that investors are really aware and conscious about which of the three basic types of risk they are taking." For Ades, there are three basic risk dimensions: "Duration - how long you are going to hold the investment; liquidity - how liquid is it, and credit risk, which is how likely is a permanent loss of capital."

Ades believes that all investments include a particular equation between these three different forces, so each investment includes different nuances of these risks. "And if an investor is going further along the risk curve, they are taking more risk, also in the other two types of risk. So for us, the other area of friction when talking to prospective investors is often around risk. We sometimes see that investors don't realize the risk they are taking in the other two areas of risk, because they ha......................

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