Most seasoned investors agree that an understanding of risk is a critical part of the investment process. Some investors adopt an investment approach and then try to manage the risks associated with the investments they have made. For Auscap, risk frames our investment approach. Management of risk comes first, prospective return second. There are risks we are prepared to accept to deliver returns for our investors, and there are many risks we are not prepared to accept. Specific risk intolerance is our first investment filter. It reduces the number of companies we would assess as prospective Fund investments by, conservatively, at least half of all the Australian listed companies we meet within five minutes of analysis. Over the next few newsletters, we intend to share a few of our views on risk and the way it shapes how we invest our unitholders’ capital.