The myriad challenges facing investment managers seem to multiply with the days, months and years – it is difficult to remember a time in my nearly-30 years in this industry when the risk management dynamics were shifting so swiftly as we lurch from one thorny issue to the next.
The full array, from trade tensions between China and the US, through Brexit and political turmoil in the US in the form of impeachment proceedings, to the existential threat of climate change, means that investors must work harder than ever to digest the implications and manage the risks they can.
There are three principle issues that modern risk management must face. First is the nature of how we got to this point, a period of incredible returns for equities since the Global Financial Crisis and a 30-year decline in bond yields, and the implications for where risk assets go from here.
Second is the nature of the modelling tools and metrics at our disposal, and third is the vast complexity of uncertainty itself, a multi-headed hydra that is never adequately captured with a single number.
What does seem certain, however, is that global growth and corporate earnings face a number of headwinds, with slower growth, zero or negative interest rates, and low inflation or deflation all on the cards.
The great central bank experiment of quantitative easing and unconventional monetary policy has not quite played out as expected, and, so far, only the US Fed has truly tried to escape from the mire.
But even the mighty Federal Reserve failed to reach escape velocity, and we are back relying on the punchbowl of liquidity that the central banks globally have provided.
There is, of course, no guarantee that monetary easing will be as effective going forward, as we have witnessed a steady decline in outcomes with each new programme.
Given the growing universe of negative yielding debt, even with the continuation of the most benign environment for risk assets, it will be a challenge for investors to achieve some of the returns of recent years over the next decades.
The tools at our disposal to navigate more treacherous waters are largely grounded in so-called 'modern' financial theory; put simply, much of our understanding of financial risk relies upon mathematical and financial concepts from nearly five decades ago.
Over time, investors have learnt to reduce everything to safe probabilities. Under the guidance of well-entrenched principles, our education still teaches us to rely on simplifying the opportunity set to one of reasonably well-defined outcomes.
Instead, investors need to take heed of the changed environment and focus their attention on the possibilities, even the least likely of multiple scenarios, as only through an understanding and careful analysis of the less likely will we be able to properly prepare portfolios.
Additionally, relationships that have held in the past between risk assets, and that we have come to rely upon, may well not hold going forward.
The brief experiment in the US of removing said punchbowl this time last year revealed how quickly seemingly uncorrelated assets can see their correlations move towards one.
It is essential to attempt to gauge forward-looking ex-ante risk from as many different angles as possible, and rigorous scenario analysis can help guide investors in the right direction.
In order to generate returns, investors must take on and manage uncertainty as best they can, but to ensure that they are risks of their choosing they need to build as complete a picture as possible of market dynamics going beyond traditional yardsticks.
They begin risk work by looking at volatility, dispersion and correlation - but move beyond these to consider broader issues such as stretch risk (where relationships may seem healthy but are actually governed by the motion of an elastic band and can snap back when stretched too far), liquidity issues (including the difficulties currently faced by the European banking system, for example), and geopolitical risk.
And then they must consider the biggest risk of all, the entwined, existential threats of climate change and biodiversity loss.
They try to capture and understand the range of potential outcomes as well as the drivers that constitute transition risk, including accounting for tipping point risks along the way that represent irreversible step-changes.
Historically, risk has proven to be a talented shape-shifter, able to manifest itself in many guises across different timescales and in surprising places.
Our thinking on the broad topic of risk continues to evolve.
Eoin Murray is head of investment at Hermes Investment Management