The Cambridge Centre for Risk Studies has found that using real-world scenarios can improve the resilience of investment portfolios. Historical performance is not a guarantee of future results, and investment managers need to test their strategies against a wide range of potential causes. Real-world scenarios build hypotheses about extreme events of the near-term future based on scientific evidence and assess how they could affect investments. This improves the resilience of investment strategies and provides better assessment of risk premiums in asset pricing. The private asset class, including private equity, infrastructure, natural resources, real estate, and private credit, has experienced tremendous growth in recent years, attracting investors seeking stable income and/or superior returns. However, the dynamic nature of private investments requires multiple levers to drive value, leading to a significant level of risk. Using real-world scenarios can help investors better prepare for future risks and improve the resilience of their portfolios.
