Navigating Investment Risk

How are Family Offices navigating global trade wars and geopolitical tensions? Family Offices globally are reshaping investment strategies in response to increased global trade tensions and geopolitical uncertainty. According to the UBS Global Family Office Report 2025, 70% of Family Offices rank global trade wars as their top investment risk, with major geopolitical conflicts (52%) and inflation (44%) also significant concerns. Over the next five years, geopolitical issues are projected to become even more critical. To manage these risks, Family Offices increasingly favor active management, selecting skilled managers to maintain stability during market volatility. About 40% prioritize active management, while 31% rely on hedge funds known for mitigating downside risks. Additionally, 27% are boosting their holdings in illiquid assets for market resilience. Precious metals have also regained popularity, now chosen by nearly 20% of Family Offices. Asset allocations have shifted notably toward developed market equities, currently averaging 29%, while developed market bonds have gained attention for their stable returns during uncertain periods. Interest in emerging markets like India and China remains cautious due to geopolitical unrest (56%) and political instability (55%). Additional concerns such as currency volatility and regulatory challenges further complicate investment decisions in these regions. Private market allocations are adjusting as well. Typically strong in private equity, Family Offices are moderately reducing their exposure from 21% to a projected 18% by 2025, driven by rising interest rates and slower exit opportunities. Regionally, investments continue to favor North America and Western Europe, while exposure to Asia-Pacific and Greater China is modestly declining, reflecting evolving perceptions of risk. Succession planning is another key area for Family Offices. While over half (53%) have formal plans, significant challenges remain in tax efficiency (64%) and preparing the next generation effectively (43%). These strategic adaptations offer broader considerations for investors of all types. How might Family Office strategies inform individual and institutional approaches to investing? Could these strategic changes reshape overall market dynamics? Most importantly, how will ongoing geopolitical developments shape future investment opportunities?

In recent conversations with pre-seed investors, I’ve been struck by how quietly but fundamentally the bar has moved. Today, many investors still say they back teams and ideas early, but in practice they’re underwriting evidence of learning, and revenue is increasingly the clearest proxy for that. That doesn’t mean six-figure ARR. It means proof that the product has escaped the lab. One investor put it simply: “I’d rather see three customers paying £20k a year, renewing and asking for more, than thirty pilots that never quite turn into anything.” Retention, renewals and upsells show something far more important than demand — they show relevance. Someone has budgeted for you, lived with the product, and decided it’s worth keeping. The same applies to focus. Many early companies still pitch vast market opportunities, but the businesses that feel most investable are often doing the opposite narrowing in. A medtech company focused purely on one clinical workflow. A SaaS platform built specifically for one regulated niche. A hardware business that starts with a single, painful operational problem rather than an entire value chain. That focus is rarely about limiting ambition. It’s about reaching product–market fit sooner because without it, scale its all hypothetical. There are exceptions, of course. Some funds will still back pre-revenue businesses through specialist vehicles or public-private programmes. But even there, the expectation is shifting: investors want to see credible pathways to revenue, not just the promise of one. The subtext in many of these conversations is risk. After a long period of paper valuations and mark-ups, investors are anchoring back to fundamentals. Revenue isn’t just a metric, it’s evidence that a founder understands their customer, pricing, and value proposition well enough to get a deal done. For founders, the implication is clear. At pre-seed, the question is no longer “Can this be big?” It’s “Has this started to work?” Increasingly, the strongest signal that it has… is that customers are paying and coming back for more. #tractionmatters #venturecapital #riskcapital

Diversification can't save you if the whole system is stressed. That's the argument I make in my first column as a new guest columnist for Sustainable Times, and it's one investors are only just beginning to confront. For decades, we built portfolios on the assumption that the natural systems underpinning the economy were stable. Reliable water. Predictable weather. Infrastructure that could cope. Those assumptions are breaking down. The early warning signs are already showing up in places most investors rarely look, such as insurers withdrawing from flood-exposed regions, property markets quietly repricing climate risk, and supply chains under pressure from droughts and extreme weather. When the system itself becomes unstable, diversification doesn't solve the problem. It just spreads exposure to the same underlying risk. That's why natural capital, forestry, regenerative agriculture and nature-based infrastructure are earning their place in long-term portfolios. More than impact investing, but as resilience. These are real assets that restore ecosystems while strengthening the economy they sit inside. Nature isn't just a backdrop to the economy. It's the infrastructure that supports it. How are climate and nature risks showing up in the investment conversations you're having today? Full column below 👇 https://lnkd.in/ekYHYr4b

Interest Rate Risk: Why It Matters Even When Rates Are Stable Interest rate risk often hides in plain sight. When rates are volatile, it is top of mind. But when they stabilise — or appear to — many assume the worst is over. This assumption can be costly. Understanding interest rate risk requires more than tracking central bank decisions. It requires recognising that repricing mismatches on the balance sheet do not disappear just because the market quietens. In fact, those mismatches often deepen during calm periods, masked by stable net interest margins or temporary accounting gains. There are two main types of interest rate risk that every bank must manage: Repricing Risk (or Gap Risk): This arises when assets and liabilities reprice at different times or on different terms. For example, fixed-rate mortgages funded by short-term customer deposits create exposure if rates rise — the funding cost increases, but the asset yield does not. Basis Risk: This emerges when two instruments reprice from different benchmarks. For instance, a bank might hedge SONIA-based assets with 3M LIBOR derivatives (historically) or hedge variable-rate loans using swaps indexed to a different benchmark than the underlying cashflows. These risks are rarely symmetrical. A bank might be positioned to benefit in one scenario but be significantly exposed in another. And while earnings-at-risk models can show the short-term impact, economic value measures often reveal the longer-term story — particularly for banks with large maturity mismatches. So why does this matter today? Because balance sheet positioning over the past five years has shifted dramatically. In the ultra-low rate environment, many institutions leaned into fixed-rate lending, chasing margin through duration. Now, as central banks hold at higher levels or begin to ease, the embedded rate sensitivity in those positions becomes more apparent. Here are three reasons interest rate risk still deserves attention: 1. Lagged Effects: Interest rate risk is often slow to materialise. Hedging costs roll off, floors expire, and behavioural assumptions (like early repayments) shift when rates stay high for longer than expected. 2. Policy Uncertainty: Central banks are not done yet. Rate cuts may not come as quickly or deeply as markets expect. Any surprises — especially on inflation or employment — can quickly change the path and catch institutions off guard. 3. Capital and Liquidity Impact: Earnings volatility affects capital. Rate risk also interacts with liquidity risk, as seen in 2023 when deposit outflows coincided with unrealised losses on securities portfolios. These are not isolated risks. They compound. Managing interest rate risk is not about predicting rates. It is about being prepared for multiple scenarios. This includes regularly stress testing key assumptions, assessing both short-term and long-term exposures, and ensuring risk appetite aligns with strategy, even when rates are steady.

Most quantum boardroom conversations end without an agenda. They end with a posture — "we're monitoring quantum developments," "we're taking it seriously". Neither statement produces a plan. The distinction matters because quantum creates three problem classes, each with a different urgency and a different cost of inaction. A generic posture misaddresses all three at once. The right response, for most leadership teams, has three parts. The first is to defend now. Post-quantum cryptography belongs on the enterprise risk agenda as a current priority. That means building visibility into cryptographic dependencies across the enterprise, identifying migration priorities, and mapping third-party exposure. This is the part of the quantum agenda that cannot wait. The second is to explore selectively. Most leadership teams do not need a wide portfolio of quantum pilots. They need a small number of focused efforts on high-value problems where the workload aligns with quantum's actual strengths — evaluated against the strongest available classical alternative. Each effort should be a targeted test: one specific problem, one clear classical benchmark, one honest evaluation. The third is to build options. For companies in simulation-relevant sectors — pharmaceuticals, advanced materials, energy — the right posture is modest investment in partnerships and early hardware collaborations. The goal is R&D workflows that are ready to integrate quantum subroutines when the technology matures. The companies that benefit most will not necessarily be those spending the most today. They will be the ones best positioned to move when the moment arrives. The most common failure on quantum is conflating the urgency of the three classes — treating all three as equally distant or equally immediate, when each has a different clock running. The organizations that get this right understand early which problem classes matter to their business, which ones to set aside, and what the distinction demands of them starting Monday morning. https://lnkd.in/gkymW7Xm

Tail risk-aware investors: 1. Don’t blindly rely on full-sample correlations for portfolio construction 2. Give scenario analysis a meaningful role in asset allocation decisions 3. Use these downside scenarios to estimate the investors’ risk tolerance 4. Use portfolio optimization tools that account directly for left-tail risks 5. Beware of “diversification free lunches” in privately held asset classes 6. Evaluate interest rate risk and its impact on stock-bond diversification 7. Seek asset classes that provide upside “unification”/anti-diversification 8. Consider active risk management strategies: ▪️ Hedges with put options and proxies ▪️ Strategies that embed short positions ▪️ Momentum-based factors or strategies ▪️ Actively-managed absolute return alts ▪️ Managed volatility overlays/strategies ▪️ Strategic or tactical cash allocations [From the book Beyond Diversification. This is not investment advice.]

There are subtle risks sitting in US equities that may not be fully apparent using the traditonal equity factor frameworks. Currently, those risks are growing. 👉 US small caps are more dependent on easy financial conditions relative to big caps than in more than a decade (see chart) There is a widening gap between the “haves” (big caps with pricing power, scale and thus easy access to capital) and the “have nots” (subject to tariff uncertainty, low interest cover and exposed to higher rates and tighter credit conditions).   This means that if you have small cap vs big cap exposure, then you have rate exposure . It may well be significant depending on your names. The impact of the exposure also depends on whether financial conditions actually move significantly in the months ahead. Given the amount of uncertainty over tariffs, recession, inflation and the Fed, all sorts of shifts are possible.   This is a good example of how a macro risk model can help equity investors be more aware of some non-traditional factor risks. PMs with small cap or big cap vs small cap exposure will also want to understand returns, and if we do see a shift in US financial conditions then returns will be hard to understand without this insight. 📈 The chart below 👇 shows the exposure of the S&P500 and the Russell2000 indices to a shift in "financial conditions". 👉 “Financial conditions” comprises rates, the US Dollar (a stronger USD => tighter US financial conditions) and HY credit spreads (the spread over US Treasuries that low rated corporates need to pay to borrow money for 5 years). Chart courtesy of Quant Insight   #riskmanagement #equities #factorinvesting #mferm

The Fed did not increase rates. Is it important? The real question should be how to position financially based on Fed monetary policy. Today, we held an interesting discussion with our portfolio managers - Juan Xavier Sanchez, CFA, and Jose Luis Cova. I will share some highlights, explain how we position investment portfolios, and advise clients.   Our analysis suggests the Fed is looking at core inflation and wage growth as the key metrics for their approach to rate increases and liquidity in the economy. Why? Core inflation includes shelter (real estate), medical expenses, and transportation, which tend to be ‘sticky’ in nature, meaning they take longer to change. Food and energy are excluded because of their volatility and cyclical nature. Wage growth spiked during the last two years, fueled by low unemployment. A strong labor market is a good sign of a healthy economy, but too much growth can cause higher inflation. According to the Federal Reserve Bank of Atlanta survey, wage growth spiked in the summer last year by about 6.7% and decreased to about 5.3% this summer. How are we positioning investment portfolios? In equities, we favor companies with strong balance sheets and cash flows that help them avoid financing at high rates. In terms of fixed income, keep a relatively short duration. We are not going long because the market isn’t compensating enough for the risk; interest rate and credit risk are involved. Alternatives have been a key focus for our portfolios. We have been finding great opportunities in the private credit space, including loans to corporations and real estate. The yields are attractive, and the volatility is much lower than in public markets. How are we advising regarding family finances? With high rates, it makes sense to be a lender, not a borrower. It used to be the other way around for many years. It might sound simple; the problem is that these changes take time, and personal issues are involved. For example, families looking to buy a home with a mortgage today must spend much more. Today, it seems better to put more money down and less debt than a few years ago.   Some families had a line of credit against their investment portfolio and could get a loan for less than 2% a few years ago. The problem is that these loans have variable rates, and today, they cost about 5% more because of Fed hikes. Does it make sense to hold fixed-income securities that yield lower than the line of credit? Even equities, is the expected return worth it once you adjust for risk? In closing, the evolving monetary policy landscape requires a proactive approach to both investment and personal financial planning. We're in an era of transition, with the Fed's actions permeating multiple facets of the financial world. While rate hikes can be a tool to curb inflation, they also underscore the significance of adapting one's financial strategies in line with the broader economic climate.

Google is issuing a call to action: the quantum era will break the digital locks we rely on, and the window to get ahead of it is closing rapidly. This is a signal leaders should not ignore. Quantum’s promise, drug discovery, materials science, energy, comes with a brutal side effect: a cryptographically relevant quantum computer could unravel the public-key cryptosystems protecting bank transfers, private chats, trade secrets, and classified systems. And the most dangerous part is timing. Attackers don’t need quantum to arrive to start winning. They can harvest encrypted data now and decrypt it later. The breach happens in slow motion, then shows up all at once, helped by AI to find patterns and insights in the data. I’ve been saying this for years: if the last few years belonged to AI, the rest of this decade increasingly belongs to quantum, and the world is not ready for quantum’s “ChatGPT moment.” Standards are no longer the excuse. National Institute of Standards and Technology (NIST) finalized the first post-quantum cryptography standards in August 2024. This is the most underpriced risk in modern leadership. The “we’re waiting” era is over. Y2K was a $100B inconvenience. Quantum migration is a civil-engineering project for the digital world. Imagine a an airplane swapping engines mid-flight without crashing. That’s what “crypto agility” demands: replacing the cryptography under your entire business while customers keep booking, checking-in, boarding, and trusting the system. And the time to start working is today, because when one of the companies building toward this future tells the market to move, you move. Google has been working on post-quantum cryptography since 2016, and it’s now publicly warning that a large-scale quantum computer could break today’s public-key cryptography. That combination, deep capability plus an explicit call to action, isn’t PR. It’s a timeline a signal you should not ignore. This decade rewards leaders who modernize trust before trust collapses. Is your organization preparing itself for what is to come?

I spent several years underwriting real estate private credit funds. Here are three red flags that you should avoid when investing in these funds: 🚨- Lack of experience. If the management team and support staff do not have experience as real estate lenders, you should understand that they are unlikely to be capable of understanding the nuances of the risks involved in becoming a lender. 🚨🚨- Lack of discipline. If the PPM is overly broad, the investment thesis is not consistent, and you are seeing random asset types in tertiary markets, run, do not walk to the exit. 🚨🚨🚨- Poor governance. If the fund has difficulty producing historical data, does not plan to (or pass) an audit, makes loans to insiders, or does not use a third party fund administrator, these should be signs that your investment is likely at higher risk. Here are 3 things you should always ask to see: 1️⃣ - Audited financial statements 2️⃣ - Current loan tape 3️⃣ - Loan Case Studies If these cannot be produced in a timely and professional manner, consider it an additional red flag. Anything you would add Paul Shannon, Bradley Laddusaw, CPA, or Leyla Kunimoto?