Managing CRO Risk Expectations
Finally, an investor must manage expectations of what a CRO may or may not do, experts say. "It's impossible to make money without taking risk," Rahl notes.
"It is reasonable to expect that a CRO take the lead in recommending a proper comprehensive risk management program," Mangiero says.
A CRO also should identify vulnerabilities that could result in a financial loss, under performance or negative headlines, she says. But investors must remember that managing risk and return is a balancing act, she adds.
"There is no free lunch," Mangiero says. "It is unfair to expect that a CRO can both mitigate risk and maximize return. In an information-efficient market, risk and return go hand in hand. It is unfair to expect that a CRO can prevent catastrophic risks-though the actions of a CRO should help to understand triggers that might lead to major catastrophes."
Kristin M. Fox is the founder and principal of FoxInspires LLC, a firm specializing in providing unbiased investor education. She is also a board member and oversees the Chicago activities of 100 Women in Hedge Funds.