Supercars vs. Uber Drivers: Risk Management for Actual Humans

Executive summary:

  • The complexity of some risk management platforms can lead to a steep learning curve for institutional investors, draining resources and creating stress.
  • We believe that for most firms, what they need is not a single product or pre-built platform. This is because the demands and constraints of each institutional investor are just too different.
  • We believe that some of the best OCIO providers are those that earn your trust one assignment at a time, instead of trying to upsell you on a large, complex solution.

Not everyone should buy a Lamborghini to drive to the airport.

If you need to drive 220 miles an hour and demand doors that open upward instead of outward, and if you have a car budget in the millions, then maybe you’re the exception. But for the rest of us, a supercar is probably too much car, too much stress, too much money. It’s just too much.

The same logic may hold true when it comes to risk management platforms for institutional investors. Some respected and skilled asset managers pitch platforms that promise to transform the way institutional chief investment officers (CIOs) and their teams manage portfolios, manage risk, and invest. But, as a former CIO of a very large publicly-traded California utility company with a small-but-capable in-house investment team, there is really no way we could have put such a platform to use. We had a team of only three or four people. Such a tech-based risk management platform has a lot of complexity with a steep learning curve. Managing data requirements, learning new functionality, and shouldering the responsibility to get everything exactly right drains resources and creates stress. It’s just too much.