Institutional Quality Risk Management for SFOs: Podcast with Sam K. Won
Sam K. Won Discusses Institutional Quality Risk Management for Family Offices with Angelo J. Robles
In Part 2 of the Family Office Association Podcast Audio Series, Angelo J. Robles is joined by Sam K. Won as they discuss the institutional quality risk management for SFO’s. You can either read the transcription or listen to the podcast and learn more about options for institutional quality risk management for SFO’s.
Angelo Robles: Hello, everyone, it’s Angelo Robles at Family Office Association in today’s audio podcast. I am here with my friend Sam Won, founder and managing director, Global Risk Management Advisors. Hello, Sam. How are you?
Sam Won: I am fine, Angelo. How are you?
Angelo Robles: I am doing fantastic, such a pleasure to connect. We are going to have a conversation today about risk management specifically as it pertains to financial wealth, which I believe is one of the most important, if not the foundation of importance when it comes to investing. On that note, Sam, let us get right to it. If you do not mind, for our audience, define the meaning of a risk management as it pertains to the financial wealth of a very wealthy family or a single family office.
Sam Won: I would be happy to answer that question. Angelo, risk management in relationship to financial wealth really needs to be thought of in two segments. The first segment that family offices should care about is protection of assets or wealth preservation. The second important factor they need to think about is how can they have growth in that wealth over time in a sound, sustainable manner. With that, the kinds of risks that Family Offices should be aware of really fall into several buckets. The first is market or price risk meaning that the price of their investment or their asset is subject to going down and that decline can happen many times in market cycles very dramatically as it did in the 2008 financial crisis, where S&P went down 38.5 percent. The other kind of risks that Family should also be aware of in relation to their investments or their investment portfolio are liquidity risk. That is are the investments that they have made liquid to meet their liabilities or their other financial needs. Thirdly, in the financial crisis, one of the things that became evident was credit or counter party risk. By credit or counter party risk, many families saw institutions such as Lehman Brothers or Bear Stearns that have been around for well over one hundred years disappear. They also saw investments in their portfolio that may have been triple A rated that were in fact not triple A rated. The credit crisis, or the financial crisis rather, brought to the forefront that credit and counter party risk, liquidity risk, are very much risk factors that affect all investors, but in particular family offices investors because of the size of their portfolios.