2023 Top Episode #4: Stan Miranda – Modern Endowment Model at Partners Capital, EP.334

Risk Strategies

In the modern endowment model, comprehensive risk strategies are crucial for managing complex portfolios. Stan Miranda emphasizes the importance of understanding the underlying assets in a portfolio, as exposure reports alone are insufficient. He explains that risk management involves using a risk dashboard with over 16 metrics to identify unintentional overweights and adjust them using liquid assets like ETFs 1. This approach allows for tactical asset allocation, where opportunities in structured credit or other asset classes can be seized based on market conditions 2.

You think you understand from their exposure reports what you own, but you don't know what you own just from their exposure reports.

--- Stan Miranda

Miranda also discusses the balance between static risk and tactical opportunities, highlighting the need for a dynamic approach to asset allocation.

   

Beta Focus

The focus on beta and volatility is essential in assessing investment risk. Stan Miranda argues that beta, rather than volatility, should be the primary risk measure, as volatility can lead to counterproductive actions like selling assets when markets are down 3. He introduces the concept of the information ratio as a key metric for portfolio construction, emphasizing the importance of balancing alpha expectations with volatility 3.

A lot of people out there in our business think about the average endowment portfolio should have 10% standard deviation around its annual returns, 10% volatility budget, which makes no sense.

--- Stan Miranda

Miranda also highlights the role of quantitative filters and psychometrics in investment diligence, ensuring that managers align with the endowment's goals and values 4.