The recent global financial crisis has highlighted the impact of market turbulence on the evolution and severity of risk. As investors care about extreme risks, it is necessary to re-think portfolio management systems in accordance with risk perception and risk aversion. We propose a new paradigm in which the manager sets a long-term strategic risk-return target trade-off with tight risk limits, but very flexible asset allocation constraints. The implementation of this new system, called the Strategic Global Risk-Return Allocation, is tested live with the use of the FolioMaster optimization software from Gambit Financial Solutions.
(11 pages)