Investment Risk Management

Are Family Offices Ready for Market Turbulence? Market volatility and persistent uncertainty dominate the current investment climate. Most Family Offices anticipated these conditions and strategically positioned themselves ahead of disruptions. The UBS Global Family Office Report 2025 illustrates how these investors effectively transform volatility into opportunity. Top Risks Family Offices Monitor: • Geopolitical Conflict (52%): Middle East tensions, notably involving Iran, have disrupted energy markets and global supply chains, prompting many Family Offices to recalibrate strategies quickly. • Global Trade War (70%): US-China trade disputes are inflating costs and impacting profitability, making this a top priority for strategic adjustments. Family Offices are proactively addressing potential long-term economic challenges: • Global Recession (53%): Inflation and geopolitical tensions indicate a looming economic slowdown, prompting portfolio adjustments. • Debt Crisis (50%): Interest rate hikes have exposed financial vulnerabilities, leading Family Offices to emphasize proactive debt management. • Climate Change & Market Volatility (48% & 46%): Climate concerns are increasingly central to investment planning and risk strategies. Strategies Family Offices Implement for Resilience: • Active Management (40%): Leveraging experienced managers to navigate market shifts effectively. • Hedge Funds (31%): Using hedge funds to protect assets and secure stable returns. • Illiquid Assets (27%): Investing in private markets to maintain consistent, long-term growth. • Precious Metals & Short-Term Bonds: Diversifying with safe-haven assets like gold (19%) and short-duration bonds (26%) for stability. Despite careful planning, Family Offices face challenges in identifying reliable risk strategies in today's uncertain markets. Their strategic adaptability remains key to long-term wealth preservation. Consider: Is your investment strategy aligned with leading Family Offices? Are you ready not just to withstand, but thrive in turbulence? Success in uncertain times hinges on foresight, flexibility, and preparation. Data adapted from the UBS Global Family Office Report 2025. Context updated for June 2025. This analysis is for informational purposes and is not investment advice.

🕰️ It’s time to evaluate the Long-Term Debt Cycle and Its Impact on CRE (Ray Dalio) Dalio believes that we are currently at the brink of a period of "Great Disorder" within the long-term debt cycle. He suggests that we are entering the late stage of the cycle, where economic, political, and social tensions are escalating due to high levels of debt, economic inequality, and geopolitical conflicts. According to Dalio, these conditions are reminiscent of past cycles that have led to significant disruptions and changes in economic and political systems. This stage is characterized by increasing instability, which could result in a major economic downturn or a shift in the global order. - - - For #CRE investors, this means that rising debt costs, economic instability, and changing asset values could be on the horizon. Understanding this cycle could be the key to navigating the coming challenges in the CRE market. Here’s why the long-term debt cycle matters now more than ever. 1️⃣ Rising Interest Rates (We’re through this phase, for now) As the debt cycle peaks, central banks may raise interest rates to combat inflation. • Higher rates increase the cost of debt for CRE investors. • Refinancing existing properties becomes more expensive. • New investments may yield lower returns due to higher borrowing costs. This will squeeze profit margins, making debt management crucial. 2️⃣ Economic Slowdowns A downturn in the cycle often leads to a broader economic slowdown. • Reduced business activity decreases demand for commercial spaces. • Vacancy rates rise, impacting rental income. • Investors may struggle to maintain cash flow. Understanding market timing can help mitigate these risks. 3️⃣ Declining Asset Valuations Economic instability can lead to falling property values. • Investor confidence may drop, reducing demand for CRE. • Credit availability could tighten, further depressing prices. • Properties may lose value, impacting your portfolio’s equity. The long-term debt cycle is a critical factor in CRE investing. Understanding where we are in the cycle can help you navigate upcoming challenges and seize opportunities. ❓How are you preparing your CRE strategy for the next phase of the debt cycle? #CommercialRealEstate #RealEstate #Investing

Rising Interest Rates & Credit Risk: What It Means for Expected Credit Loss (ECL) With interest rates climbing, the credit risk landscape is shifting. As borrowing costs rise, more businesses and consumers face financial strain, increasing the likelihood of defaults. That’s where Expected Credit Loss (ECL) analysis becomes even more critical: Expected Credit Loss = Probability of Default × Loss Given Default 🔹 Probability of Default (PD) → Higher interest rates can lead to increased defaults, especially for highly leveraged borrowers. 🔹 Loss Given Default (LGD) → Declining asset values (e.g., real estate or collateral) may reduce recovery rates, increasing potential losses. 💡 How Financial Institutions Are Adapting: ✅ Stress testing loan portfolios against rate hikes 📊 ✅ Adjusting risk models to reflect macroeconomic conditions 📉 ✅ Strengthening capital reserves to absorb potential losses 💰 The key to navigating this environment? A proactive credit risk analysis process that integrates real-time data and forward-looking risk models. As central banks continue adjusting policies, financial professionals must stay ahead of the curve. 📢 How is your organization managing credit risk in today’s high-rate environment? Let’s discuss in the comments! 👇 #CreditRisk #InterestRates #RiskManagement #Finance #CFO

This time will be different. But not in the way you might expect. Every economic cycle is different, not because downturns won’t happen, but because the causes vary - yet, the outcomes are invariably the same. Drawing from my personal experience during the Global Financial Crisis of 2007+ when I watched some investors thrive while others saw their wealth evaporate, there are lessons that resonate today. As we face shifting policies under a new administration, these lessons are more relevant than ever. Here’s what I experienced during the GFC and the investing principles it reinforced - principles I first learned during the Savings and Loan crisis of the early 1990s: 1. Prioritize Risk Management GFC Lesson: Excessive leverage and speculative investments created systemic vulnerabilities. 2025 Application: • Keep loan-to-value (LTV) ratios and overall debt low. • Stress-test proforma assumptions under worst case scenarios. • Diversify across asset class, geography, sponsor. 2. Liquidity is King GFC Lesson: Investors and developers who ran out of cash reserves fared the worst. 2025 Application: • Maintain strong reserves to navigate downturns and seize opportunities. • Focus on cash-flow as a priority. • Establish multiple equity capital sources. 3. Focus on Fundamentals, Not Hype GFC Lesson: Speculative markets, driven by hype, disconnected asset prices from true value. 2025 Application: • Invest in assets with strong fundamentals: location, demand, and cash flow potential. • Avoid chasing trends or overpaying in overheated markets. • Stick to your principles and maintain a disciplined underwriting approach. 4. Long-Term Perspective Pays Off GFC Lesson: Investors who focused on the long-term, rather than short-term speculation, survived and thrived. 2025 Application: • Prioritize sustainable growth over rapid returns. • Seek investors who value conservative, long-term success. • Look at investments with a 10+ year horizon rather than focusing solely on quick flips and the highest IRR. 5. Regulations Matter GFC Lesson: Deregulation contributed to risky lending practices and poor oversight. 2025 Application: • Monitor regulatory changes that make getting bank loans appear too easy. • Be conscious that excess liquidity in the market can fuel economic bubbles and plan accordingly. • Stick to disciplined underwriting standards, avoiding the temptation to compete with those who do not. *** The principles that carried investors through past crises are just as vital now - if not more so as we prepare for a real estate guy in the White House again. If you’re planning to invest in real estate in 2025, subscribe to my newsletter for proven tactics, emerging opportunities, and actionable insights - shared from decades of experience. Link to subscribe on my profile page.

Most Wells Fargo employees haven’t heard of sequence of return risk. But for soon to be Wells Fargo retirees, it can quietly derail even the most well-funded plan. Here’s what you need to know and what you can do about it. Use these strategies to: ↳ Protect your portfolio ↳ Extend your retirement savings ↳ Create a solid withdrawal plan Understand sequence of return risk • Early losses in retirement can hurt your portfolio. • Even if the market bounces back, timing matters. • A few bad years can shorten how long your money lasts. Why it’s a big deal • A solid average return won’t fix early losses. • Bad years at the start can lead to big problems later. • Your retirement income plan needs to be strong from the start. Control your withdrawals • A steady withdrawal rate, like 4%, can help. • Pulling out too much too soon makes it worse. • Keep your spending in check to protect your nest egg. Withdraw with a strategy • Where you take money from matters greatly. • In down markets, tapping the wrong account can hurt. • Avoid unnecessary taxes and boost long-term growth. Diversify your investments • Mix stocks, bonds, and cash for stability. • Diversification smooths out volatility. • It cushions the impact of market downturns. Sequence of return risk is real but manageable. Plan ahead. Make smart choices about withdrawals, allocations, and income strategy. Remember. Retirement planning isn’t one-size-fits-all. ☑ It’s personal. ☑ It’s strategic. ☑ And it’s worth getting right. What part of your retirement income plan feels uncertain right now? Drop it below or shoot me a message.

The success of your retirement could be riding on this one thing. It's probably something you don't know about. It's called sequence of returns risk. And if you're a high earner, it could make or break your retirement dreams. Here's the deal: Sequence of returns risk is all about the timing of your portfolio returns, especially as you near retirement. → It's not just about how much you earn → It's about when you earn those returns  → And more specifically, it's about the impact of experiencing negative returns early in retirement Picture this scenario: You've crushed it in your career, saved diligently, and built a $5 million nest egg. You're ready to trade in the corner office for a corner cabana. But then, just as you start tapping into your hard-earned savings, there’s a downturn. → Your portfolio gets hammered in the first few years of retirement  → You're forced to sell at a loss to cover your living expenses  → Which rapidly depletes your assets and throws off your whole retirement plan Even if the market bounces back later, the damage is already done. You've locked in those early losses, leaving you with a lot less to live on for the rest of your retirement. And for high earners used to a certain lifestyle? That's a risk you can't afford to ignore. The key is to be proactive and have a plan in place before you need it. Because once you're in the danger zone of those early retirement years? It's a lot harder to course-correct. And let's be real: You didn't work this hard, for this long, to let a few bad years derail your dream retirement. So if you're a high earner with your sights set on a prosperous post-work life? It's time to get serious about managing sequence of returns risk.

Recent risk assessments have highlighted the escalating concerns surrounding macroeconomic and geopolitical risks, particularly in relation to shifts in policies and priorities impacting operations and market conditions. The sensitivity of businesses to geopolitical and security issues, such as tariffs, sanctions, embargoes, and trade restrictions, poses a real threat to operations. To address these risks effectively, proactive risk organizations are implementing integrated risk management practices. These practices involve continuously reassessing enterprise risks, updating exposure information, and aligning operations to develop informed contingency plans. Some of the key considerations and actions being taken include: - Supply Chain Diversification or Re-location: Exploring options to diversify supply chains or relocate operations to mitigate risks associated with geopolitical and macroeconomic uncertainties. - Negotiated Price Lock-ins, Cost-sharing, or Hedges: Engaging in negotiations to secure price lock-ins, cost-sharing agreements, or hedging strategies to manage financial exposure to fluctuating market conditions. - Inventory Buffers: Building up inventory buffers to cushion against supply chain disruptions or delays resulting from geopolitical tensions or policy changes. - Tariff Engineering, Product Reclassifications, or Exemption Filings: Strategizing tariff engineering tactics, reclassifying products, or filing for exemptions to navigate changing tariff landscapes effectively. - 'Wait and See' :): Monitoring developments closely and adopting a cautious 'wait and see' approach to assess the evolving geopolitical and macroeconomic landscape before making strategic decisions. By aligning risk management practices with operational strategies, organizations can enhance their resilience in the face of geopolitical and macroeconomic uncertainties, ensuring a more robust and adaptive business model.

The 5 years before and after retirement can make or break your financial future. Here's the uncomfortable truth most advisors won't tell you: It's not just about HOW MUCH you save. It's about WHEN you face market losses. Let me explain: Two retirees with identical savings can have completely different outcomes based on: • WHEN they retire • WHAT the market does in those first few years This is called Sequence of Returns Risk. And it's the hidden retirement killer. Here's why it matters: 1. Market drops early in retirement are devastating        You're withdrawing while your portfolio is down    (The equivalent of bleeding in shark-infested waters) 2. Recovery is harder when taking withdrawals        Portfolio has to work twice as hard to bounce back    (Like climbing up while walking down an escalator) 3. The impact is permanent        Even if markets recover, the damage is done    (You can't un-spend what you've withdrawn) Real example: A $1M portfolio drops 20% in year 1 of retirement? It could run out 10 years earlier than planned. The solution? Create a buffer zone: • Protected money for immediate needs • Growth potential for later years • Clear strategy for both This is why I help my clients build their Bucket Strategy BEFORE they need it. Hoping for good market timing isn't a strategy. Having a plan is. What's your biggest concern about market timing and retirement?

Black swan events are rare, unpredictable, and have massive impacts. Standard risk models, which rely on historical data and assume normal distributions, fail to capture these extreme outliers. Banks should recognize that financial returns often have “fat tails,” meaning extreme events are more common than standard models predict. Instead employ risk models that account for fat tails and non-linear interactions, such as Monte Carlo simulations with fat-tailed distributions. These allow banks to better capture the real risk of rare, high-impact events and improve stress testing. Taleb argues that the focus should be on building systems that are robust to negative black swan events, rather than trying to predict them. This means designing risk management frameworks that can withstand shocks and limit exposure to catastrophic losses. While diversification works for regular risks, it is often ineffective against black swan events, which can cause simultaneous, correlated failures across assets or sectors. Banks must recognize that in "Extremistan" (Taleb's term for domains dominated by outliers), a single event can overwhelm diversification strategies. Taleb suggests it is preferable to take risks you understand and to contractually limit those you do not, rather than assume you can model or predict them. Use contractual tools (such as caps, exclusions, and limits) to restrict potential losses from extreme events. Banks can adopt similar practices to better manage tail risks. Taleb warned that if one bank fails, others may follow due to interconnectedness, making systemic risk management crucial. Just because something has worked in the past does not mean it is safe; repeated success can breed dangerous complacency (like the turkey fed daily until Thanksgiving). Banks should remain skeptical of prolonged periods of stability and avoid assuming continued success means low risk. Design portfolios and business models that not only withstand shocks but can benefit from volatility and disorder. This means limiting downside exposure while keeping upside potential open, a concept Taleb calls “antifragility”. Antifragility refers to systems that improve and grow stronger when exposed to shocks, volatility, and uncertainty, rather than merely resisting them (resilience) or breaking under stress (fragility). Regularly conduct robust stress tests that simulate extreme but plausible scenarios. Use new heuristic measures of fragility and tail risk to identify vulnerabilities in bank portfolios and operations. Avoid becoming “too big to fail.” Large, complex institutions create systemic risk externalities that can amplify the impact of black swan events. Smaller, less interconnected banks are less fragile and pose fewer risks to the financial system. Acknowledge that not all risks can be predicted or quantified. Build buffers, maintain conservative leverage, and avoid overconfidence in risk models.