Advanced Strategies for Managing Market Risk in Institutional Portfolios

As a portfolio manager for a large institutional investor, you have been closely monitoring the recent market trends and the increasing volatility attributed to geopolitical tensions and economic policy shifts. Your client's portfolio, valued at $500 million, is predominantly allocated to equities (65%) with a significant tilt towards growth sectors. The client has expressed concerns regarding the potential for substantial market risk and has asked you to implement a revised risk management strategy.

Considering both the economic outlook and your client’s investment objectives, outline a comprehensive market risk management framework. Your response should include the following:

• Identification of the primary sources of market risk relevant to the portfolio.
• Appropriate measures to mitigate identified risks, including specific financial instruments or strategies.
• A discussion of how these measures align with the client's risk tolerance and investment objectives.
• Consideration of the dynamic nature of market risk and how you would adjust the strategy over time.