Enhancing Credit Risk Management in Investment Portfolios

A large institutional investment firm has a diversified portfolio consisting of equities, fixed income, and alternative investments. Recently, the firm has been experiencing increasing exposure to credit risk in its fixed income holdings, particularly as corporate defaults rose in a slowing economic environment. In a bid to reassess and manage these risks, the firm's chief risk officer has asked for a comprehensive review of their credit risk management strategy.

As a CFA Charterholder, outline an approach to evaluate and enhance the firm’s credit risk management practices. In your response, include detailed recommendations regarding credit risk measurement and monitoring processes, credit appraisal techniques, appropriate hedging strategies, and the role of credit ratings and alternative data sources. Provide a reasoned conclusion that includes how these strategies can be integrated into the firm’s overall risk management framework.