The Promises and Pitfalls of the SFDR
JUNE 16, 2021
- There is a hidden systemic risk that lurks among the most diversified of investment portfolios. This risk accumulation arises from the remarkable concentration in the technology supply chain all companies share. This is a natural outcome for any technology or vendor that achieves significant market dominance.
- This risk aggregation presents both a threat and an opportunity. It is imporant for portfolio managers to understand the extent of this accumulation in their own portfolios. Once understood, the level of diversification within a portfolio’s technology supply chain could be included in risk management strategies.
- Portfolio risk aggregation is also a risk for the typical large corporation given they tend to use thousands of vendors, among whom the same technology dependence and concentration is widespread. For its part, the corporation can make its risk mitigation much more effective if it can direct investment toward securing shared core supply chain components.