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Mastering Investment Insights: The Power of Ex-Post Risk Reporting

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Mastering Investment Insights: The Power of Ex-Post Risk Reporting

Alex Serman • May 21, 2024

As many firms struggle to report on the complexities of ex-post risk analysis across their firm as well as scale these reports across large sets of accounts, having an efficient risk management and risk reporting solution is paramount for informed decision-making. Offering a retrospective analysis of a portfolio's performance and risk characteristics is critical in making better decisions for clients. By examining historical data, ex-post risk reporting provides valuable insights into how a portfolio has navigated various market conditions, enabling investors to assess its resilience and efficacy. This article delves into the different types of ex-post risk reports, including Risk vs Return Analysis, Risk Dashboards, Risk Return Summaries, and Rolling MPT Stats. Each report type serves a unique purpose, illuminating distinct aspects of risk and return to help investors make more strategic choices. Through these comprehensive reports, we aim to enhance the understanding of portfolio performance, offering a nuanced perspective that goes beyond simple return metrics.

1. Risk vs Return Analysis - The Risk vs Return Analysis report offers a comprehensive visual representation of the average annual returns of the portfolio, comparison managers, and benchmarks against their respective standard deviations. This enables a nuanced comparison of the portfolio with alternative investment options, considering both risk and return metrics. Through this analysis, investors can more effectively evaluate the performance and risk profiles of different investment strategies.

2. Risk Dashboard - The Risk Dashboard serves as the primary risk report, illustrating the portfolio's performance relative to its benchmark across a variety of risk measures. By incorporating the risk-free rate in its calculations, the report provides a clear visualization of the risk-return relationship for both the portfolio and the benchmark. Each risk measure is selected for its unique ability to shed light on different aspects of risk, ensuring that investors can uncover the most relevant insights based on their specific objectives.

3. Risk Return Summary - The Risk Return Summary report offers a consolidated view of key performance metrics, akin to the insights provided by the preceding reports, albeit presented in a distinct format. This summary facilitates a broader scope of benchmark comparisons, enhancing the depth of analysis. However, it streamlines the focus by limiting the number of risk measures displayed, ensuring clarity and simplicity in understanding the portfolio's risk-return dynamics.

4. Rolling MPT Stats - Concluding the suite of reports, the Rolling MPT Stats offer a dynamic perspective by showcasing portfolio returns and risk measures alongside variations from other benchmarks over a rolling period. This departure from static reporting periods provides a more fluid understanding of performance trends, capturing the evolving nature of market dynamics. By incorporating rolling periods, investors gain valuable insights into the portfolio's adaptability and resilience across changing market conditions.

Ex-post risk reporting is an indispensable tool for investors seeking to gain a deeper understanding of their portfolio's historical performance and risk exposure. By leveraging various types of reports such as Risk vs Return Analysis, Risk Dashboards, Risk Return Summaries, and Rolling MPT Stats, investors can uncover critical insights that inform better investment decisions. Ultimately, a thorough grasp of ex-post risk metrics empowers investors to navigate the complexities of the market with greater confidence, ensuring that their investment strategies are both resilient and well-informed.

To better understand how your firm can leverage risk reporting and provide better clarity into your client’s investment stories, please contact Alex Serman, First Rate Managing Director, Wealth & Institutional.