Katie O'Dwyer on Risk Management, Relationships, and Why Market Plumbing Matters
In this revealing conversation, Jonathan Treussard sits down with Katie O'Dwyer—a veteran risk manager who navigated the 2008 financial crisis from the central nervous system of a major family office. Katie shares the unconventional path that took her from physics at Harvard to wielding the "risk hammer" on trading desks, and ultimately to roles as CFO at Ziff Brothers Investments and senior positions at Morgan Stanley.
The conversation explores what really matters when financial systems are under stress: not just the models and mathematics, but the relationships with counterparties, the difference between perceived liquidity and true liquidity, and why understanding market plumbing can mean the difference between survival and disaster. Katie reveals what she learned tracking wires during the Lehman collapse, why Six Sigma events happen all the time in markets with fat tails, and how the desire to believe in financial alchemy—from "kitchen sink bonds" in the 1970s to structured products in 2008—repeatedly leads investors astray.
This episode offers practical wisdom for anyone managing substantial wealth: the mechanics of custody and settlement matter, relationships with counterparties matter, and understanding what you actually own—not just what the label says—matters more than most investors realize.
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What We Cover in This Conversation
Katie's unconventional journey from Harvard physics to Wall Street risk management
The "risk hammer" approach to managing trader behavior and portfolio risk
What actually happened during the Lehman bankruptcy from inside a family office
Why relationships with counterparties become critical during financial crises
The difference between perceived liquidity and true liquidity in portfolio construction
Private credit's hidden liquidity challenges and gate provisions
Psychology of financial innovation: kitchen sink bonds, AAA to junk overnight, and the desire to believe
Why market timing is mathematically impossible and behaviorally destructive
Katie's work tutoring students in underserved New York City public schools
Key Takeaways
Relationships are risk management infrastructure. During crises, you need someone who will pick up the phone when eight lines are ringing. Treating counterparties as partners—not just service providers—is an investment that pays dividends when systems are under stress. Know who to call and make sure they want to help you.
Liquidity is not safety, and perceived liquidity isn't true liquidity. Treasury markets seized during recent volatility because rational investors sold what was liquid (treasuries down 2%) rather than what was impaired (stocks down 40%). Private credit, gate provisions, and money market fund failures all reveal the same truth: liquidity disappears exactly when you need it most.
Six Sigma events happen all the time in financial markets. Fat tails mean rare events aren't as rare as normal distributions suggest. Risk management requires preparing for outcomes that theoretically shouldn't happen—because in practice, they happen regularly. Build portfolios and playbooks that work when the impossible occurs.
Diversification can't transform junk into quality. From "kitchen sink bonds" in the 1970s to structured products in 2008, the recurring fantasy is that pooling risky assets through financial engineering creates safety. It doesn't. The hair on the underlying product remains. Look under the hood of what you actually own.
Market timing is a fool's errand. The derivative is just as hard as the function—you can't predict direction, and you can't predict inflection points. Focus on where you want to be in 5-10 years, accept volatility as the price of admission, and ignore the daily noise that tempts you to buy bottoms and sell tops.
Timestamps
00:00 - Welcome and Katie's most memorable day: Lehman Sunday with her daughter
03:00 - Katie's journey from Harvard physics to Wall Street risk management
05:00 - The "risk hammer" story and culture of risk management
15:00 - Market plumbing: why relationships with counterparties matter in crises
19:00 - Liquidity: perceived vs. true, and private credit's hidden risks
23:00 - Psychology of markets: AAA to junk overnight and the desire to believe
27:00 - Why market timing is impossible and focus on long-term plans matters
31:00 - Katie's tutoring work and hobbies: bridge, baseball, statistics
33:00 - Rapid-fire questions
About Katie O'Dwyer
Katie O'Dwyer is an independent consultant specializing in risk management and operations for investment firms. Previously, she served as CFO at Ziff Brothers Investments, where she built data infrastructure and risk management systems for a diversified multi-billion-dollar portfolio, and held senior positions at Morgan Stanley. Earlier in her career, she worked as a trader and risk manager at a commodity trading advisor, where she famously kept a "risk hammer" in her desk to enforce position limits. Katie holds a B.A. in Physics from Harvard and brings a quantitative, systems-oriented approach to understanding market mechanics and operational risk. She is also an active volunteer, tutoring students in underserved New York City public schools through Goddard Riverside.
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Disclaimer
The content of "Treussard Talks" is for informational and educational purposes only and should not be considered financial advice. The views expressed are those of the host and guests and do not necessarily reflect the opinions of Treussard Capital Management or its affiliates. Consult your own financial advisor before making any investment decisions. For full disclosures, visit treussard.com.