Ian Hamilton

This column is authored by Ian Hamilton, who is the founder of IDS Group. IDS provides fund administration services in Africa and Europe through Malta. He is also the founder of Scotstone Investments, a company that has fund structures and services for global emerging new managers.

A "lamentation" of swans is one of the more obscure collective nouns but something useful to consider when investment markets are faced with a number of different "swan" issues.

We all know the black swan theory, or theory of black swan events,is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight.The theory was developed by Nassim Nicholas Taleb.

At the start of this year (interestingly on the seventh day of Christmas when one's true love was to send you seven swans –a-swimming!), I was in discussion with an industry colleague and askedhim as to how his firm was prepared for "Swan "events.His answer was typical, that "black swan events" are not predictable.

I disagree. One needs to plan scenarios, think the unthinkable, identify the possible surprises and turn them into "grey swans" or even "white swans". A good knowledge of history is also useful; here I refer to general history and not just financial history.

White swans

These are events where the effect of these events is in the realm of common knowledge. Risk management factors them in and mitigates against them.

For example, the risk of an unforeseen error in the business, which can have large financial consequences. In mitigating against this unforeseen error, the firm can take out insurance ......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.