The market volatility that has accompanied the Russia-Ukraine conflict has created dramatic swings in the equity and debt markets. While long-term investors will look past the short-term portfolio implications, this quarter is likely a good time for asset owners to assess their OCIO / investment consulting portfolios relative to expectations and evaluate internal governance and risk management activities. It is also a good test of your OCIO or investment consultant’s portfolio management skills, rebalancing activities, and level of communication and support.
Below are 5 tips for getting ahead of the discussion before things get worse. These tips will help ensure your portfolio is sustainable through all types of markets.
Tip 1: Check Your Russian Exposure
Here are a few questions to ask when starting your evaluation:
- What are your OCIO or investment consultant’s risk evaluation and reporting capabilities?
- Have you checked your specific exposure to Russia – both public and private? This article provides a link to stocks and funds with exposure to Russia.
Tip 2: Check-In On Communication
From your OCIO / Investment Consultant: Are they being proactive or reactive? How are they communicating with you?
Internally: How are you communicating amongst your committee, staff, and constituents during this geopolitical and global market event?
Tip 3: Understand and Strategize on Rebalancing
The speed and frequency of rebalancing as markets make large moves can have a dramatic impact on portfolio returns and risks. Have you and your OCIO / investment consultant been purposeful and intentional with rebalancing, or just reactionary? It is important to have a strategy and get out ahead of the discussion.
Tip 4: Review Your Governance
Volatile markets are a great test of internal governance models and controls. Consider these questions as they relate to governance:
- Is your governing committee, staff, and oversight functioning as you would have expected?
- Do you feel in control or at the whims of the markets?
- Have any weaknesses been identified and have you developed a plan to close the gaps?
- Do you feel you are getting adequate support from your OCIO / investment consultant in this regard?
Tip 5: Use This Quarter as A Shock Test for Drawdowns
Has your portfolio acted as you would have expected during the Russia/Ukraine crisis? Extreme market movements can provide great insight into the robustness and effectiveness of portfolio construction.
Many organizations didn’t take this opportunity in the sell off of Q4 2018 and as thus were shocked by their portfolios as COVID hit in Q1 2020.