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Biggest challenges for portfolio management in 2023

With record inflation, rising interest rates, continued supply-chain problems, and raging geo-political issues, 2022 hasn’t been ‘business as usual’ for a lot of businesses and portfolio managers. And while ‘new year, new me’ might be a popular saying, 2023 brings with it many of the old issues from the previous year. These and other emerging forms of risk threaten to make it a challenging year for risk managers everywhere. Here are some of the biggest challenges for portfolio management that risk managers are likely to face in 2023.

A businessman walking a tightrope that goes up and down
Macroeconomic & geopolitical issues could make 2023 a challenging year for portfolio management

5 biggest challenges for portfolio management in 2023

1. Macroeconomic challenges

Midway through 2021, US Federal Reserve officials announced they expected to make 2 rate hikes over two years. This, they projected, would see the interest rate rise to around 0.6% from 0.1% by the end of 2023. We all know now what actually ended up happening. In a story that dominated financial news cycles throughout 2022, the Feds raised interest rates 7 times last year. At present, the rate hovers around 4.5% and will likely stay elevated for the foreseeable future. Looking ahead, these monetary policies are likely to cause an economic slowdown in 2023. Unsurprisingly, experts predict that both the US and the Eurozone will enter into a recession this year. Add to this, unresolved cross-border tensions, and you have the perfect recipe for creating a volatile market driven by sentiment and undefined risks that could make portfolio management particularly challenging this year.

Takeaway tip: To keep up with unpredictable fiscal conditions, agile systems with on-demand, daily risk monitoring capabilities are a must-have.

2. Credit risk

Corporates today may feel like they’re caught between the devil and the deep blue sea. On the one hand, they must deal with increased production costs. On the other, present financial conditions make it harder for them to pass on these costs to consumers already overburdened by inflation and elevated interest rates. And as these challenges increase, so does the likelihood of corporate credit defaults. According to both JP Morgan and S&P Global, corporate default rates in 2023 will likely increase to around 3.2%, double what they were last year. The challenge for risk managers here will be to proactively manage credit risk and detect the entities that are likely to default as early as possible.

Takeaway Tip: In a noisy and volatile market, this means constantly monitoring entities for early risk indicators using digital data instead of relying only on traditional, slower-moving company data and credit ratings. Furthermore, having these capabilities in place can demonstrate to regulators and independent audit teams that your organization is prepared and proactive in managing potential risks.

3. Liquidity issues

Concerns of a tepid growth outlook and heightened market uncertainty leading to an all-out liquidity crisis have been doing the rounds since late last year. With governments and corporates alike taking on debt and tapping into their fiscal reserves during the pandemic, market liquidity levels have understandably fallen below historical norms. This relative lack of wiggle room can make it difficult for portfolio managers to formulate a quick and efficient response to a risk event. In addition, proposed SEC amendments to the existing liquidity management framework will if enforced, tighten requirements, especially for open-end investment portfolios. All of which could mean that liquidity issues become a key challenge in 2023.

Takeaway tip: Once again, proactive risk management in the form of scenario analysis and data-backed future risk prediction can help managers handle any upcoming storms better.

4. Climate & ESG risks

The Russia-Ukraine conflict and ensuing energy crisis have brought climate and ESG risks to the fore. According to the global rating agency Moody’s, ESG factors are likely to affect credit quality this year. In 2022, both the SEC and the European Commission drafted new proposals to enhance and standardize sustainability and ESG disclosure requirements for companies. Most of these requirements are set to come into force in 2023. In addition, several other federal agencies have proposed similar ESG-related principles for financial institutions in the US. If mandated, such regulations will fall under the purview of the risk department and will be another criterion for teams to consider while making financing and de-risking decisions. With the increased focus on this area, ignoring it could cause unwanted reputational harm.

Takeaway tip: With very little historical sustainability-related risk data to fall back on, identifying the ESG factors that can affect financial performance and integrating these into future-forward risk analyses is of paramount importance. ESG data can be vast. So, relying on an automated system to capture and filter out the noise can make the task easier.

5. Nonfinancial risks

Today’s tech-enabled and interconnected global ecosystem has ensured that businesses are more susceptible to nonfinancial risks than ever before. The pandemic is a prime example of this. A disease that started in an obscure nook of the world became a financial contagion that affected the four corners of the globe. With the ongoing Russia-Ukraine conflict, uncertainties about its geopolitical, energy market, and third-party implications remain high. What is sure is that with the prevalence of online media, there’s not much that can be hidden. Consequently, business reputations (and fortunes) are not just dependent on financial performance and can be made or lost in no time at all.

Takeaway tip: For portfolio managers today, this means that monitoring nonfinancial risks becomes as vital as monitoring financial ones. With this comes the need to analyze and quantify nonfinancial information that can be found in abundance in the online world.


Given the bleak economic outlook, 2023 looks to be a challenging year for portfolio management. Yet, all is not lost. A patient and agile risk management approach can help financiers ride out the storm. And we can help with that! Want to know how? Schedule a demo with us today and we will be happy to walk you through how TRaiCE uses technology and automated processes to enable daily, comprehensive, and forward-looking risk monitoring. You can also try us out for free with our 3-month free trial offer!


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