Risk Management Beyond the Textbook: Ten Principles for CIOs

Over time, long‑term investment success depends less on predicting markets and more on having clear principles that guide decisions through uncertainty. Markets evolve, cycles repeat, and pressure exposes weak processes. These principles were shaped by experience across multiple cycles and are designed to help a permanent pool of capital take risk deliberately, remain resilient, and deliver sustainable outcomes for members over the long term.

1. Use long-term capital market assumptions intelligently, but don’t outsource judgment.

Institutional investors employing long-term capital market assumptions for asset mix decisions in 2021 encountered a significant turning point in 2022, as central banks worldwide rapidly increased interest rates. This period of heightened volatility demanded robust internal executive-level judgement to assess the potential responses of private asset classes to an unprecedented spike in interest rates. Developments in public markets served as reliable indicators for anticipating outcomes within private assets, underscoring the necessity for a thorough understanding of private valuation methodologies before deploying or dealing with exit queues in private markets. For example, reducing Canadian equities with energy and materials exposure for core private real estate would have been a very common recommendation to protect against inflation in an asset-liability study. This change was unwise and was anticipated, given publicly traded real estate investment trusts (REITs) declined with Canadian equities averaging 21% over the next three years, compared to 0% for Canadian core private real estate. Private real estate lags REITs in reflecting new market regimes due to differences in valuation methodologies. 

2. Track all asset allocation and portfolio construction decisions, rebalancing decisions, and non-decisions. 

It is important to maintain a comprehensive log documenting all significant asset allocation and portfolio construction decisions at your fund and over your individual career. Each entry should clearly articulate the return and risk rationale behind the decision, outline alternative options considered, and specify the benchmarking approach for evaluating outcomes. Periodically review past decisions to extract actionable insights from your successes, failures, or missed opportunities. For example, having a log documenting passing on a grocery-anchored retail strategy coming out of the pandemic because of the broader decline of brick-and-mortar retail was a learning opportunity for future disruption events. Grocery-anchored retail ended up being a home run within real estate, and it was not disrupted by DoorDash or Uber. 

3. Establish strong governance and diverse opinions.

Effective investment committees combine external CIOs and experienced investment practitioners with lay members who bring institutional knowledge and fiduciary judgment. External CIOs contribute deep market experience, pattern recognition, and accountability drawn from managing capital across cycles, while lay members provide independence, challenge assumptions, and ensure decisions align with the long‑term mission. A critical test of strong governance is whether investment staff can explain their most complex strategies in plain language to a lay audience. Many of the industry’s most significant blowups have occurred in highly sophisticated strategies, where complexity was insufficiently challenged. Requiring clarity and explainability helps guard against false precision, the pursuit of complexity for its own sake, and the mistaken belief that sophistication alone creates alpha or permanently reduces risk.

4. Systematically learn from peers who are getting it right. 

Mining institutional pension and endowment surveys helps identify top performing peers by asset class and understand what is driving their results. Those insights can be applied to one’s own fund. For example, several leading infrastructure allocators built exposure to digital infrastructure well before the Chat GPT moment, creating opportunities to collaborate and adopt specialist strategies in data centers and related assets by learning directly from successful peers.

5. In private assets, buy what you cannot find publicly.

Any Investment Committee memo for a private investment should answer the question why does this opportunity need to be accessed privately? If similar exposure is available through public markets at lower cost and with greater liquidity, the case for going private must be explicit and compelling. For instance, public REITs have historically outperformed private real estate within institutional portfolios. Therefore, it is important to clarify the objectives of deploying capital privately, beyond simply mitigating volatility. The memo should articulate a distinct advantage, such as aggregating smaller assets to achieve a portfolio premium upon sale, pursuing land entitlements, or sector specialization unavailable in public markets or at better entry valuations. 

6. Cultivate market intelligence from frequent manager meetings. 

Allocating time to meet with investment managers, whether in person or virtually, is a highly effective method for gathering critical intelligence that can generate alpha or mitigate risk for your fund. Aim to conduct at least 100 prospective meetings annually, focusing on opportunities aligned with potential capital deployment or areas of concern. For example, six years ago, we engaged with Westport Capital, a relatively unknown manager in the Canadian institutional investor space, when they were doing a road show through Eastern Canada. We passed on an allocation at the time, but the meetings were valuable nonetheless. They shared insights about NewCold, an innovative cold storage company that was disrupting the sector through artificial intelligence and automation. Years later, despite high demand for their fund, the relationship we developed enabled us to participate in their vehicle supporting NewCold’s continued expansion globally. This resulted in a differentiated alpha source within our real estate portfolio.

7. Give younger team members a real voice during the investment decision making process 

One of the quiet risks in investing is generational blind spots. Whether serving as a portfolio manager selecting stocks or an asset allocator overseeing investment managers, it is invaluable to consult younger team members, particularly when investing in companies that rely on consumer spending. For instance, those who do not consider insights from younger colleagues may overlook shifting patterns such as declining alcohol sales reflected in public companies such as Heineken, and the simultaneous growth of luxury gyms like Lifetime Fitness observed within private equity allocations. 

8. Re-underwrite during major market regime changes.  Resist autopilot rebalancing, you have SIP&P asset class ranges for a reason. 

Major market regime shifts are exactly the moments when portfolios deserve fresh thinking. Re‑underwriting forces an assessment of why a position exists, what is driving returns, and whether the forward-looking risk/reward still makes sense. Automated rebalancing can prematurely cut winners simply because they are successful, whereas SIP&P ranges are designed to allow judgment. For example, if a value‑oriented equity manager is outperforming due to industrial exposure with reasonable valuations and improving fundamentals, it may be prudent to let that position run. By contrast, gains driven by multiple expansion in growth names such as Zoom or Peloton during a transient regime may warrant trimming. This preserves conviction based investing and avoids mechanically selling what continues to work for the right reasons.

9. Diversify at the total fund and allow for intentional concentration within asset classes. 

Risk should be managed across the full fund, not by forcing excessive diversification within every asset class. This approach avoids over diversification that dilutes returns, while ensuring that no single exposure can impair the plan overall. Concentration is intentional, monitored, and justified by conviction, expertise, and structural advantage. There are only so many truly attractive opportunities at any point in time, whether power within infrastructure, self‑storage in real estate, or AI hardware in public equities. Capturing these themes requires allowing some degree of concentration to let high‑quality ideas meaningfully impact results.

10. Understand risk through scenario analysis and its impact on each asset class, portfolio, and your broader funded status. 

Monitoring risk metrics like standard deviation, downside capture, and surplus volatility is essential; however, scenario analysis offers greater value for decision-making. For instance, when conflicts intensify in oil rich countries, we refer back to similar historical scenarios from the 1979 energy crisis, which provided insight into oil price surges and persistent inflation. We had a clear understanding of how each asset class and portfolio would respond in the event of conflict escalation. Our portfolio included allocations that had Canadian energy and material companies because of this exact modeled scenario. Additionally, we were aware of which exposures were most susceptible to significant drawdowns, allowing us to proactively trim these positions.

Conclusion

In closing, these ten principles form a practical framework for sound CIO decision making. They emphasize judgment over automation, clarity over complexity, and balanced governance over group think. At the Carleton University Retirement Plan, applying these principles has helped  navigate multiple market regimes, avoid unforced errors, and act decisively when long-term opportunities emerge. Most importantly, they have reinforced a culture where risk is understood, debated, and owned. As of December 31, 2025, the Carleton University Retirement Plan reported 1-, 4-, and 10-year returns of 14.2%, 8.7%, and 8.9%, respectively. These outcomes have directly supported the improvement of members' pension benefits, with the aforementioned principles serving as significant drivers of alpha. Despite the volatility around us, having a long-term focus and proven process can position your fund to deliver strong outcomes for your membership. 

Andrew Urquhart

Executive Director, Carleton University Retirement Plan

Andrew is the Executive Director responsible for oversight of the Carleton University Retirement Plan and Carleton University Endowment. He chairs the Pension Committee and provides investment oversight of the University's Investment Committee, with accountability for overall governance, strategic asset allocation, portfolio construction, and performance and risk analysis across both pools of capital. Prior to joining Carleton, he was Head of Private Investments at the NAV Canada Pension Plan, where he led global private market underwriting, co-investments, ESG integration, and supported internal risk and FX management.