Investment Quality Control: The Importance of Risk Management

by Chris Orndorff

Consumers like to get what they pay for. When they purchase a carton of milk at the market, they are usually unhappy if they subsequently discover apple juice in the carton. Clients who hire an investment manager are no different. Someone who invests in a small-cap growth fund does not wish to own alarge-cap value portfolio.

In this context, risk management is best understood as investment quality assurance. It helps assure that milk gets into the container rather than apple juice. It does not, however, ensure that the investment product has a positive return or exceeds a benchmark index return.

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