Extreme market moves can impact portfolios, causing them to lose value, which 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. Protecting portfolios from adverse consequences of extreme events is possible, and, in the process, trustees will have made an active contribution to fulfilling their fiduciary duties.
This paper, published in the STEP Journal, forms a helpful introduction to practitioners less familiar with portfolio stress-testing.
STEP is the global professional association for practitioners who specialise in family inheritance and succession planning. STEP works to improve public understanding of the issues families face in this area and promotes education and high professional standards among its members.
STEP members help families plan for their futures, from drafting a will to advising on issues concerning international families, protection of the vulnerable, family businesses and philanthropic giving. Full STEP members, known as TEPs, are internationally recognised as experts in their field, with proven qualifications and experience.
Q G Rayer (2016), Testing times, STEP (Society of Trust & Estate Practitioners) Journal, volume 24, issue 8, p62-63, October 2016.