Risk Management

Risk Management

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Goldman Sachs Private Wealth Management

Fall 2009

When investing in assets that generate an expected return above the risk-free rate, the challenge is to be diligent about understanding and measuring the sources of risk in order to anticipate low-probability but high-impact events, and to take steps to manage those risks. Risk can be defined simply as the probability and magnitude of a deviation from an asset’s expected return. But how can such a fundamentally complex concept be modeled? Do mathematical formulas hold the answer, or should the emphasis be placed on qualitative factors? The answer is that both quantitative and qualitative factors are important in assessing risk. Equally important are: 1) the framework used to assess and manage risk, 2) the people responsible for risk management and the experience they have managing different types of risks through varying environments, 3) the tools available for risk management and, 4) the attitude of the institution towards risk, something that we commonly refer to as “risk management culture.” At Goldman Sachs, we consider all of these factors.

Our global head of Risk Management for the Investment Management Division and the chief operating officer of Private Wealth Management discuss the importance of risk management and Goldman Sachs’ approach to managing risk.

Goldman Sachs Private Wealth Management regularly publishes insight and commentary on investment and wealth management topics for our clients. To pursue a conversation on this topic, please contact a private wealth advisor.

The risk management practices discussed herein are practices of the firm. The firm and Private Wealth Management periodically make changes and improvements to risk management practices that are deemed prudent. It is incumbent upon individual investors to be comfortable with the level of risk in their portfolio based upon their investment objectives and asset allocation established to implement the objective.