Capital Allocators – Inside the Institutional Investment Industry Karyn Williams – Measuring Risk Practically at Hightree Advisors (Capital Allocators, EP.163)
Nov 9, 2020
In this engaging discussion, Karyn Williams, founder of Hightree Advisors and former partner at Wilshire Associates, delves into practical ways to measure investment risk. She reveals the gap between theoretical financial models and their real-world applications, sharing insights from her journey at Farmers Insurance and Two Sigma. Karyn emphasizes the importance of tailored risk frameworks and user-friendly analytics, while advocating for a culture of cooperation over competition in asset management. She also touches on personal passions, highlighting the importance of self-awareness and meaningful conversations in finance.
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Misapplication of Mean-Variance Optimization
- Mean-variance optimization is often misapplied in practice, focusing on statistical measures rather than actual investor needs.
- There's a significant gap between sophisticated theoretical models and practical application in portfolio construction.
Limitations of Standard Deviation
- Mean-variance optimization often uses standard deviation as a risk measure, which may not align with an investor's true concerns.
- Benchmarks based on policy portfolios can be misleading if the portfolio's risk profile changes.
Focus on Common Risk Factors
- Focus on underlying common risk factors across asset classes.
- Tailor risk models to the specific needs and objectives of institutional investors rather than applying generic solutions.