Gyrostat Builds Retirement Around Sequencing Risk

In this Leaders InFocus interview, Gyrostat Capital Management Managing Director and CIO Craig Racine speaks with GFM Review’s Brett Hurll following the firm’s recognition as Best Retirement Portfolio Resilience Manager Australia 2026. Racine explains why retirement demands a different approach from accumulation, focusing on sequencing risk, behaviouralsurvivability and portfolio construction. He also outlines why Retirement Portfolio Resilience should be treated as a distinct asset class alongside retirement income solutions and discusses the conversations advisers should be having with clients before they begin drawing down their savings.

Brett: Congratulations on Gyrostat winning Best Retirement Portfolio Resilience Manager Australia 2026. For those coming to your work for the first time, would you describe in plain terms what Retirement Portfolio Resilience actually means?

Craig: Thank you so much for the recognition, Brett. I think it really helps establish retirement resilience as its own asset class. In plain terms, it enables investors on their retirement journey to remain financially and emotionally invested, regardless of the path markets take. A Retirement Portfolio Resilience allocation is designed as an addition to the broader portfolio that helps make that possible.

Brett: From the SBRCR framework, sequencing, behaviour, risk, construction and resilience, which of those five pillars do you think is most consistently underestimated by the industry right now?

Craig: If you look at the starting point for many retirees, it is understanding that sequence of returns risk, particularly market falls early in retirement, can have a dramatic impact on the quality of the retirement they ultimately experience. There are many worked examples, but the one we use starts with $1 million. Simply by switching the order in which the same returns occur, a retiree can end up around $360,000 worse off even though the average return is identical. Many people still do not appreciate the severity of that consequence.

That happens because the natural risk management embedded in dollar-cost averaging during your working life disappears when you retire. You can no longer rely on continuing to invest from your salary at lower market prices. You have a larger balance while drawing cash from it. Sequence of returns becomes the fundamental problem, and it is why industry reviews around the world have pointed towards the need for a retirement resilience asset class.

If that allocation is not in place, behaviour can become a real issue because investors may panic. Research, including work from Russell, shows the effect behaviour can have on outcomes. Getting the structure right proactively means the resilience allocation is there when needed. Sequencing and behaviour are probably the two most underestimated pillars, and both feed into the final objective, a genuinely resilient retirement portfolio.

Brett: You draw a clear distinction between retirement income solutions and Retirement Portfolio Resilience in practice. How do you explain that difference to an adviser who has spent their career treating those as the same conversation?

Craig: It comes back to sequence of returns risk. A retirement income solution asks whether the client will have enough money to live on for the rest of their life. We are seeing pooling products emerge, government incentives where the amount invested in a pool may count differently against pension tests and health cards, and various annuity-style products. Their primary purpose is to address the income question, including how capital adjusts depending on longevity and what payment the investor receives. That is one pillar.

The second pillar is different. The retiree will still hold growth assets to address longevity. The allocation may be lower than it was during accumulation, perhaps 40% or 35% rather than 60%, but those growth assets remain exposed to market falls and sequence of returns risk. A Retirement Portfolio Resilience allocation pairs with that growth exposure and is intended to address part of the portfolio’s vulnerability to adverse sequencing.

The two functions blend together into a broader response to the retirement problem, which is why Retirement Portfolio Resilience is emerging as a distinct asset class. Retirement income alone can still leave growth assets exposed to sequence risk. That is the key distinction. We need products specifically designed to address it.

Brett: William Sharpe called retirement income “the nastiest problem in finance”. What is it about the decumulation phase that makes sequencing risk so much more destructive than the volatility investors face during accumulation?

Craig: It comes down to the natural risk management that dollar-cost averaging provides during accumulation. Early in your career, your balance tends to be lower, and if markets fall, you continue investing and effectively buy more at lower prices. The order of returns is generally less destructive in that phase, provided you keep saving regularly through good years and bad. You already have a degree of risk management built into the process.

As you approach retirement, your balance is larger, but that is exactly when sequence of returns starts to matter more. Once the regular salary is gone, that natural risk-management mechanism disappears and you are drawing down the capital needed to support your retirement. You therefore need another way of embedding protection within the portfolio. That is the role Retirement Portfolio Resilience is intended to perform.

Brett: Many conventional portfolios still depend heavily on markets rising over time. What happens to a retiree’s position when poor returns arrive early in retirement?

Craig: Over the long term, markets do tend to rise, so an investor who is dollar-cost averaging through accumulation is better placed to use falls to their advantage. But take the same person with the same starting balance. They could retire in any of the next seven years and receive the same average return over the following decade.

If they happen to retire just before the market falls, they can be significantly worse off than someone who retires into a favourable sequence, even though the long-term average return is the same. That is the difference retirement brings. The outcome can depend heavily on the order in which returns arrive. A resilience allocation is intended to reduce the portfolio’s dependence on that favourable sequence.

Brett: Behavioural survivability is a concept you write about with real conviction. What does that look like when an investor’s confidence breaks during a downturn, and how can portfolio structure help prevent it?

Craig: In my conversations with advisors, they say the hardest moment is when markets have fallen and investors open their statement to see their nest egg shrinking. During accumulation, an advisor can honestly say, “Keep dollar-cost averaging and stick with it,” because the investor is still contributing and the math supports that advice over time.

You cannot give exactly the same advice to someone who has retired and is no longer earning an income, yet many people still approach the conversation in that way. The math is different once withdrawals have begun. That is what behavioural survivability, and the stewardship responsibility that comes with it, is really about.

I write about this with conviction because I have experienced it personally. My father was one of those people who faced a market fall at the point when the consequences were most severe. Unless the portfolio has been structured proactively, the investor can come under enormous pressure as the market falls 10%, 20%, 30% or 40%. The usual reassurance becomes harder to sustain because the retiree is no longer dollar-cost averaging.

This is why stewardship has to address the issue before it happens, while markets still allow the structure to be put in place. Of everything we have discussed, this is the most significant point to me. There is nothing worse than being 70 years old, seeing your nest egg down 25%, and not knowing whether it is about to fall another 25%. Portfolio construction should reduce the likelihood that the investor is forced into a decision under that pressure.

Brett: The Retirement Income Covenant and the continuing work of APRA and ASIC have brought retirement outcomes and sequencing risk closer to the centre of the regulatory conversation. How has that changed the reception you receive from advisers compared with five years ago?

Craig: I think the industry reviews around the world have been very successful in framing this discussion. When I attend conferences now, it is quite usual for three or four product providers in the room to be specifically addressing sequence of returns risk. That is a very positive development. There is much greater awareness that the old advice, “In the long run you will be fine,” is not necessarily mathematically true for a retiree who is drawing down capital.

This thinking is now appearing in educational frameworks that help investors and advisors navigate the products available. We have written extensively about the five pillars in a product-agnostic way, alongside industry and government submissions exploring how the framework should evolve.

That is the most significant shift, and I do think it is gaining real traction. Industry bodies are rolling out education, and dealer groups are including much more material on sequence of returns risk in their training. The industry is responding to this without a doubt.

Brett: Gyrostat has operated within a hard risk parameter for more than 60 consecutive quarters. What has that discipline cost in terms of upside, and do you think it is the right trade-off for a retiree or investor?

Craig: I do not really think of it only in terms of a trade-off. If you remain entirely within a traditional accumulation portfolio, you may continue to be exposed to sequence of returns risk. The more important question is what that exposure could cost when retirement savings need to support the investor.

In terms of Gyrostat specifically, we did not follow an existing template. We looked at the features a genuine Retirement Portfolio Resilience allocation would need, and three things stood out.

First, there has to be a clearly defined risk limit. You cannot create a stable retirement journey if the resilience allocation itself is capable of falling sharply. Our approach is structured around a hard quarterly risk tolerance. Across more than 60 consecutive quarters, no quarterly loss has exceeded 3%. That is a structural discipline rather than a market forecast.

Second, when growth assets are falling, a resilience allocation should do more than reduce the loss. It should be capable of increasing in value. Our record through major corrections has shown the allocation rising as the embedded protection increased in value. That has produced a return pattern with a low relationship to the broader equity market. This is what “regardless of the path markets take” means in practice.

Third, protection cannot consume all the upside when markets are stable or rising. If it produces no meaningful return through other market phases, it becomes difficult to use as a long-term allocation. Our approach is intended to generate a return across trending, volatile, stable and falling markets, although the pattern will differ.

The decision is not simply discipline versus upside. It is whether the investor remains fully exposed to sequence of returns risk, or blends a resilience allocation with preferred growth managers so the portfolio is better prepared for different market paths. Other managers may pursue the same objectives through different mechanisms, but those are the features I believe a Retirement Portfolio Resilience asset class needs.

Brett: For an adviser sitting with a client who is five years from retirement and feels well prepared, what is the conversation about Retirement Portfolio Resilience that they are probably still not having?

Craig: As a steward of capital, it is about carrying out genuine scenario planning around the different paths markets may take. Start with what the client wants to do in retirement. If markets rise, there may be no immediate problem. But also examine the scenario where there is a significant fall. How has the portfolio been prepared for that? We use a grid that considers large falls, volatile up-and-down markets, stable markets and rising markets.

As stewards of capital, we should preserve the core approach that served the client through accumulation. Keep the managers that continue to fulfil their purpose, and look critically at those that have not outperformed their index once costs are taken into account. Then consider how to blend that longevity-focused growth exposure with a Retirement Portfolio Resilience allocation.

The objective is that, whatever path markets take, the client can remain financially and emotionally invested. When markets fall, the advisor should be able to explain that growth assets are down, but the retirement income structure has already been considered and the resilience allocation is behaving as intended. The client should not have to make a decision under pressure. That is what being a steward of capital really means.

Brett: That is a good place to leave it. Thank you very much, Craig and congratulations once again.

Criag: Thank you, Brett.

Brett Hurll, Executive Editor at Global Financial Market Review, draws on over 35 years of international experience across technology and finance sectors, providing readers with sharp analysis and unique perspectives on emerging trends, market shifts, and the complex interplay between global business and political dynamics. His extensive background and senior leadership role position him as a trusted voice on financial markets and economic developments.  If you have an interesting editorial reach out to our team at editoral@gfmreview.com