Risk Management in the Age of Uncertainty

In the 1600s, merchant ships faced enormous uncertainty while delivering cargo throughout the world. Rough weather, pirates, foreign gunships and disease consistently threatened their voyages, and the timing, severity and probability of these risks were unknown. Prior to the use of sophisticated weather and navigation instruments and advancements in ship design, shipowners, trade financiers, maritime insurance companies and crews took on great risk during each journey.

We are currently in the most uncertain economic environment in a generation, and many of our forecasting and risk management tools have been rendered useless. The range of policy and economic outcomes in the pre-pandemic world were more limited and well defined. We now are tasked with navigating through an environment with little certainty and increased risk. As we learn more about the novel coronavirus and move closer toward a vaccine, we have gained clarity about some future risks but remain blind to others. COVID-19 has presented great challenges and forced businesses to rethink their long- and short-term corporate strategy as well as their capital structure. As a wealth manager, we have had to adapt our business to a more virtual world and manage portfolios through a different risk management lens.

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