Risky Business: The Chief Risk Officer Advantage

Key Takeaways

Independent risk teams identify blind spots, stress-test portfolios and ensure risks taken are deliberate, scaled and well-understood.
Comprehensive risk analysis—covering market shocks, diversification and client-specific goals—builds resilient portfolios.
Historical perspective and emerging risk detection help avoid overreactions and prepare for unpredictable market scenarios.

When it comes to managing risk, OCIO providers can’t afford to overlook history.

The most effective risk management programs don’t prepare for future market shocks in isolation. They mine the past for clues on how portfolios behave under stress. Without that context, hidden vulnerabilities can be missed.

That’s where an independent team of risk experts, armed with robust analytical tools and deep historical insights, comes in. At Russell Investments, I’m proud to lead such a team as the firm’s chief risk officer. Here’s how we manage risk—and why we believe all OCIO providers should have a chief risk officer specializing in independent risk evaluation.

Finding the Blind Spots

I see the purpose of a chief risk officer as two-fold:

To act as an independent, second set of eyes and identify any unintended risks
To ensure client PMs can leverage the insights of our platform risk analytics

Unintended risks, or blind spots, exist in every investment process. No matter how skilled a portfolio manager may be, there are always assumptions that need testing and scenarios that can be overlooked. A good risk management program should be equipped at finding and addressing these. Think of a chief risk officer as a sort of devil’s advocate on behalf of investors.

This tends to only be a small part of the job, though. In my view, most of a chief risk officer’s time is spent ensuring portfolio managers are using the full range of risk management tools and analytics to guide their decisions. My team works closely with investment professionals to confirm that the risks being taken are deliberate, well-understood and appropriately scaled. This is especially vital in today’s fast-changing markets, where the appropriate level of risk today might look dramatically different tomorrow.

Importantly, a good risk management team isn’t there to play Monday-morning quarterback and second-guess good processes and decisions. Rather, their purpose is to engage in what we call “constructive collaboration”—asking thoughtful questions and challenging assumptions—in order to build stronger, more resilient portfolios.

Multi-Pronged Approach

Because every client has different goals and risk tolerances, every portfolio will look a little different. That’s why we believe in taking a multi-pronged approach to evaluating risk. This includes assessing standard types of risk—equity allocation, fixed income sensitivity and benchmark tracking—as well as more extreme scenarios like liquidity shocks, credit stresses and sharp market drops. This helps us understand how a portfolio might behave not only in typical markets but also in more challenging, less predictable environments.

We see diversification as a cornerstone of this process, as it helps spread risk across multiple sources of return. Ultimately, our goal is to establish clear procedures that minimize unnecessary exposure while keeping portfolios positioned to capture upside opportunities.

Learning From History

Markets seldom repeat, but they often echo. This makes historical perspective one of the most powerful tools a chief risk officer can bring to the table.

As proof, look no further than this past April, when stocks and bonds tanked in unison as the U.S. unveiled a spate of reciprocal tariffs. Many investors feared a repeat of 2008 and rushed to de-risk their portfolios.

Our team saw it differently. Rather than drawing parallels to the Global Financial Crisis, we compared the market dynamics to early 2020, when markets plunged during the onset of Covid-19 before fully recovering only months later.

With that context, our teams didn’t overreact. Instead, we maintained positioning for a potential V-shaped rebound—and that’s exactly what happened.

This isn’t to say that historical analysis provides exact answers. It doesn’t. But it does allow us to make more informed decisions and prepare our portfolios for a wider range of possible outcomes.

Hidden Risks

As risk managers, we’re well aware that some of the most dangerous risks are the ones not captured by traditional models.

Take the dot-com bust of the late 1990s, for instance. During the collapse, many companies that weren’t in the internet sector yet had “dot-com” in their names ended up behaving pretty differently than traditional risk models would expect. This wasn’t a risk flagged by any model at the time.

That’s why we work closely with our manager research teams to identify emerging or latent risks—factors that may not appear in typical risk frameworks but could still have a major impact.

The Bottom Line

Our role as an independent risk team is to bring historical perspective and careful analysis to every decision. Thoughtful risk reviews ensure our portfolios remain strong and resilient.

If your OCIO provider isn’t doing this, you could be taking on more risk than you think.

Make sure you’re working with a provider that has a chief risk officer, specializing in independent risk evaluation.

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Important information pertaining to the hypothetical example: Past performance does not predict future returns. Return level is proportionately scaled in line with cash level to be overlaid. Source: Russell Investments. Assumptions: Average cash level 1.0%, 10-year history from 12/31/2023, gross of fees. Opportunity cost from not securitizing cash varies by asset allocation and time period, and is represented by horizontal bars as marked within the chart legend. Target asset allocation used: 0% cash, 74% MSCI World, 26% Global Aggregate (GBP Hedged). For illustrative purposes only. Does not represent any actual investment. Indexes are unmanaged and cannot be invested in directly. Performance benefit (net) of overlaying cash by last 5 individual calendar year is as follows: 2023:20 bps, 2022:-17bps, 2021:16bps, 2020:14bps, 2019:23bps.

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