Managing Market Risk for a Family Office

As a portfolio manager for a family office, you are overseeing a significant investment portfolio that is roughly allocated with 60% in equities, 30% in fixed income, and 10% in alternative investments. The family is particularly worried about the increa\sing market volatility due to economic uncertainties, including inflation fears and potential geopolitical crises. You are required to assess the portfolio’s exposure to market risk and propose strategies to manage this risk effectively.

In your response, discuss the concept of market risk and its implications on the family office's investment strategy. Analyze the current asset allocation in the context of market risk exposure and recommend specific strategies such as hedging, diversification, or the use of asset classes that might be less correlated with equities. Additionally, evaluate the potential advantages and disadvantages of your suggested strategies in managing market risk.