Minimizing Risk, Maximizing Gain: an Investment Portfolio Approach to Ecosystem-Based Fisheries Management

How are regional fisheries similar to financial portfolios?

If you have a retirement account or other investments, you're probably familiar with the concept of portfolio optimization. Individuals with retirement plans or mutual funds make strategic choices about how they'd prefer to invest their money based on their risk tolerance. They can opt for lower risk portfolios, which also have lower returns, or they may choose a higher risk portfolio with higher returns.

What if we could apply these same principles to regional fisheries in the United States? Researchers at NOAA Fisheries and the University of Massachusetts Dartmouth explore that question in a new paper published in Fisheries.

They've investigated how we might make fisheries management in the United States more sustainable-and less risky-by applying financial portfolio optimization techniques alongside ecosystem-level thinking. Because fisheries revenues and investment portfolios have similar structures, treating regional revenues like an investment portfolio can provide resource managers with valuable insights.

Worth the risk?

Portfolio theory tells us that exposure to risk can be decreased by looking at an entire system and its interactions. In the same way, these multispecies portfolios help resource managers to look at the bigger picture and make more risk-informed decisions.

The paper's authors created portfolios for six U.S. regions based on each region's top 25 landed-value species. They used these portfolios to calculate each region's risk gap. A risk gap is the difference between the actual and optimal portfolio risk for a given annual revenue. Optimal portfolio values represent scenarios in which risk is minimized while revenue is maximized.

The researchers found that excess risk had been taken on in all six regions; greater revenue could have been generated for the level of risk that was incurred. Most regions took on roughly $20 to $50 million of additional potential risk for any given year.

Ecosystem-based approaches help us manage uncertainty

The team calculated risk gaps based on two different fisheries management models: ecosystem-based fisheries managementand single-stock fisheries management. They found that, on average, an ecosystem-based approach would have generated a lower risk than the single-stock approach traditionally used in fisheries management.

Dr. Howard Townsend is an ecosystem modeling coordinator for NOAA Fisheries and the publication's lead author. He and his co-authors propose that the risk gap be used as ecosystem-level indicators to inform resource managers about unnecessary risks associated with potential decisions. This is the first time that anyone has made the push to use this as an indicator nationwide. Townsend hopes it will help support the implementation of ecosystem-based fisheries management in U.S. fisheries.

"People think that ecosystem-based fisheries management means fishing less, but that's not necessarily what it is. It just means fishing more efficiently," Townsend says. "It is more about thinking of the trade-offs associated with fishing different species and making good use of resources."

Uncertainty is an inevitable part of fisheries management. As our climate continues to change, uncertainties and risks will increase. Weather patterns and ocean conditions may become challenging to predict, making it more difficult for resource managers to make sustainable fisheries management decisions. Embracing portfolio optimization techniques and ecosystem-level thinking can likely help us to deal with these uncertainties and minimize risk.

"The big takeaway from this paper is how much extra risk we've taken on cumulatively in recent years," Townsend says. "But we believe there's room to do this more efficiently, in a way that helps protect people's livelihoods."

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