An early pioneer of enterprise risk management (ERM) at the management consulting firm Towers Watson, Jerry Miccolis is now a registered investment advisor (RIA) co-managing a mutual fund with a risk management focus at Brinton Eaton.

“We executed the ERM strategy in our mutual fund through a derivative product as well as through risk exploitation, which is sector rotation. Derivative investment is the catastrophe protection aspect part of it,” Miccolis says. “The value of integrating ERM into a mutual fund is that you get the benefit of high returns in the equity market with much less risk.”

Miccolis should know. Part of his job at Towers Watson, formerly Towers Perrin, was running its risk management practice around the world. For 25 years, Miccolis travelled to London, Western Europe, Australia and Japan as well as domestically in the U.S.

“I turned 50 years old and travel was taking its toll, so I changed careers to change my lifestyle,” says Miccolis. “It was clear to me that corporate ERM could easily be applied to personal financial planning and investing. It was a natural crossover.”

Today at 60 years old, Miccolis manages the Giralda Fund (GDAMX), a risk managed large-cap equity fund up about 8 percent year to date as of yesterday with $228 million under management, according to Morningstar.

Among the ERM strategies that Miccolis employs in his mutual fund are risk exploitation and catastrophe protection.

“It behaves like an equity index fund with management against risk. Risk management devices are included inside of the fund and these risk management devices are armed and ready in the event of a market crash,” said Miccolis.

Much like sector rotation, risk exploitation involves rebalancing between the S&P 500’s ten industry sectors to exploit the volatility of each asset class.

“Sector rotation is a risk control measure that’s based on momentum so whichever sector is going well you buy more of,” said Michael Rawson, a Morningstar analyst. “There’s no Morningstar category for sector rotation funds because it’s more of a strategy that managers can use across the board with mutual funds or ETFs.”

For catastrophe protection, the fund holds investments based on volatility indexes, such as Dynamic Vix and Volatility Invest.

“Derivatives are purely in an overlay position to protect against catastrophe because derivatives appreciate suddenly when volatility spikes up. That gain offsets the loss in the overall fund,” said Miccolis. “What sets our fund apart from sector rotation-like funds is the explicit downside risk management that is built in.”

Miccolis has written numerous books and articles on the subject of applying ERM to investing including the book Enterprise Risk Management: Trends in Emerging Practices, published by the Institute of Internal Auditors.

 “Catastrophe protection and tail-risk hedging work together to provide downside risk management on our mainstream holdings,” said Miccolis. “The mutual fund evolved from trying to deliver these strategies to our clients by asset allocation and rebalancing.”