The importance of stress testing investment portfolios was highlighted in a panel discussion on the second day of the Bermuda Captive Conference held at the Fairmont Southampton yesterday.

The panellists, who included moderator Robert Paton, executive vice-president of Aon Insurance Managers (Bermuda) Ltd., Kevin Gardiner, head of global investment strategy at Barclays Wealth, Jeff Johnson, senior investment manager at Vanguard, Joe LoPorto, vice-president and relationship manager at Brown Brothers Harriman Insurance Asset Management, and David Burns, head of Schroders Bermuda, talked about the need to have an investment manager carrying out stress tests on your portfolio on a regular and consistent basis, as well as making the necessary adjustments to protect it in the future.

Mr. Gardiner gave his perspective from a cash point of view, before Mr. Johnson spoke about the money management side and Mr. LoPorto on fixed income, and then Mr. Burns gave his take on equities.

Mr. Burns said the key from an equity standpoint was to focus on volatility and its potential effects on your portfolio.

"The best you can do is lose less money than the next guy," he said. "What I am really talking about is mitigating risk in a big way."

He said it was crucial to have a robust testing process and an in-depth risk analysis in place to minimise the exposure to it, allied to having a gut feeling about it when taking on risk and making decisions.

Mr. Gardiner had set the scene by pointing out that the existential risks which had come to the fore over the past two years, such as counter party risk, a banking market freeze, deflation and liquidity, were the ones to be immediately most concerned about, but would soon disappear.

"Our view going forward is that these sorts of risks very slowly are going to be moving into the rear view mirror," he said.

"We are primarily focused with US deposits in mind, but from the Euro perspective our view is that the existence of a single currency ought not to be questioned because the currency is not in doubt, but its value certainly is."

He said that market volatility had spiked previously and it was going to do so again, however he was sceptical it would return to the peak of late 2008 and early 2009, in addition to general market nervousness swaying investors' minds.

Mr. Johnson said that stress testing was as much of a qualitative as a quantitative process and it was about managing risk across the board.

He stressed the value of having a diverse book of business comprising a combination of active and passive assets managed both internally and externally, the latter which could offer access to top class global expertise and the flexibility to shift as required under clearly defined guidelines.

Mr. Johnson said there were a number of factors that needed to be taken into account when selecting the money manager from performance and track record to their capacity to add value to the portfolio over a period of time, as well as offering stability, experience and depth, and above all an investment strategy that matches their philosophy.