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EXCERPT: Much as an enterprise allocates funds for capital
investment through the process of capital budgeting,
an investor can identify, analyze, and allocate
risk exposures through risk budgeting. At NEPC,
we see risk budgeting as a useful tool for helping
our clients identify the risks in their portfolios with
the greatest potential impact on their program, and
whether the compensation for these risks is adequate.
All investors can apply risk budgeting to a
portfolio's asset risk; defined benefit pension plans
can apply it specifically to the plan's surplus risk.
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