Using real world scenarios to improve the resilience of private investment portfolios

Download Using Real World Scenarios to Improve the Resilience of Private Investment Portfolios

This paper serves as an archetypal methodology that provides a basis for further research on integrating a multi-dimensional risk management paradigm into the investment decision-making process for private markets assets. The report explores how a scenario stress testing approach can provide a complementary tool that helps assessing and confronting these uncertainties and therefore contributing towards the viability of a portfolio.


“Historical performance is no guarantee of future results”: Although analysis of experience data helps investment managers assess how their portfolios and assets would have performed against past crises, the next crisis will be different. Improving investment strategies against future risks requires tests against scenarios of likely – and unlikely – events across a wide range of potential causes. This report is an endeavour to incorporate scenario approaches with the latest developments in enterprise risk modelling techniques developed by Cambridge CCRS for market and macro risks to measure portfolio exposures to risk factors that can impact the individual constituents of an investment portfolio, often described as idiosyncratic risks.