Quintin looks at how putting portfolios through stress testing can make sure that trustees are actively working to protect these assets from extreme market events.
Stress testing can be used to explore how extreme market events may impact portfolios, helping identify weak points. By addressing these, trustees and other asset owners can make an active contribution to their fiduciary responsibilities.
Extreme market moves can negatively impact portfolios in ways that may not be captured by conventional risk measures. Diversification breakdown may mean portfolio values are not protected. With guidance, trustees may be able to determine the impact on portfolios and arrange for restructuring to limit the downside. In the process, trustees will have made an active contribution to fulfilling their fiduciary duties.
This article forms a helpful introduction to trustees less familiar with portfolio stress-testing and was originally published by The Actuary, May 2017. ©The Institute and Faculty of Actuaries. http://www.theactuary.com/features/2017/05/stress-testing-finding-a-flaw-in-the-ointment/
The Actuary is the leading publication for the actuarial profession in the United Kingdom, published in London by Redactive Publishing on behalf of the Institute and Faculty of Actuaries. Members of the Institute and Faculty of Actuaries provide commercial, financial and technical advice underpinning the operation of insurance companies, pension funds, and other organisations, helping them and the public at large to make financial sense of the future.
Q G Rayer (2017), A flaw in the ointment? The Actuary, ©The Institute and Faculty of Actuaries, www.theactuary.com, May 2017, p20-21.