Risk management is the process of identifying, assessing, and mitigating risks in an investment portfolio. For high-net-worth individuals and family offices, this may involve using diversification, hedging, insurance, and other strategies to protect assets from market downturns, legal liabilities, or other unforeseen events.
A systematic practice that identifies uncertainty sources, quantifies their probable damage, then engineers controls to keep loss within appetite. Frameworks start with risk taxonomy mapping: market greeks, credit migration buckets, liquidity horizons, operational breakpoints, cyber vectors. Measurement stacks layer VaR models, stress scenarios, and tail simulations that blend Monte Carlo paths with historical regimes to test resilience under volatility spikes or policy shocks.
Mitigation tactics range from delta hedges and CDS overlays to process segregation and zero-trust architecture. Governance ties the lattice together; risk committees set limits, three-lines-of-defence models enforce accountability, and capital buffers align with regulatory minima yet flex for strategy. Success is evident when surprises arrive inside forecast cones and recovery playbooks trigger before headlines form.
