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Time for endowments to better assess risk when making portfolio strategy decisions, says new RiskFirst report

13 February 2019

Endowments and Foundations (E&F) currently define success by their position in published performance league tables – which can lead to similar asset allocations across the board. But a new report from RiskFirst suggests that by evaluating risk in the context of spending requirements E&F can capture more meaningful insights and design more portfolio strategies for their situation.

Assessing both risk and returns together is crucial for effective portfolio management according to RiskFirst’s new report, A new approach to setting endowment and foundation investment strategy. The report concludes that risk should be assessed just as performance is and that, taken together, this could aid the design of an optimal portfolio geared to a specific E&F’s characteristics, goals and objectives.

Simon Robinson, Head of Product Management, RiskFirst, explains: “Currently, the success paradigm for E&Fs is heavily based upon performance relative to comparable institutions, as highlighted by published performance league tables. But is beating comparable institutions, or even Yale, really the best objective for all? Where does ‘risk’ fit in to the success paradigm, and how do we determine ‘risk’?”

With a lack of available statistics on E&F risk in the market, RiskFirst examined the population of endowments modeled on its technology platform, PFaroe, over recent years, and proposes a methodology for the incorporation of objective risk measures into the determination of E&F portfolio strategies – defining a new way of looking at risk that is more specific to the institution.

Matthew Seymour, CEO of RiskFirst, says: “Technology is allowing E&Fs to define a framework for risk that reflects the objectives and risk tolerances of the E&F’s sponsoring organization. For CIOs and consultants, leveraging today’s technology through appropriate risk software tools empowers the optimization of performance within quantifiable risk parameters.”

To read the whole paper, please click here.

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