Brockhouse Cooper

Risk Management Overlay

Brockhouse Cooper Asset Management’s philosophy on risk management extends beyond the traditional approach of using efficient frontier analysis/strategic asset allocation as the primary tool to manage risk. We believe that while diversification both geographically and by asset class can be additive to a portfolio’s risk/return profile, it is clear that diversification (in and of itself) is neither a sufficient nor reliable risk control mechanism. Asset allocation and risk management should be separate functions, and unwanted and uncompensated risks should be actively monitored and managed.

We propose that investors explicitly target a specific level of volatility based on their risk preferences and seek to maintain it by modulating their portfolio’s exposure to the market, conditional on the prevailing level of market volatility through liquid futures contracts.  As a result, investors will maintain the desired level of market risk within their portfolios (while preserving any alpha which may result from active management), as opposed to maintaining a fixed dollar or percentage exposure which leads to varying levels of portfolio risk subject to changes in prevailing market conditions.

Read our White Paper on Constant Volatility

Brockhouse Cooper Asset Management is a division of Pavilion Asset Management Ltd.