Buy-Side Group Outlines Risk Management Best Practices                              

NEW YORK – Governance, investment and operations personnel in the securities and investments industry will have all to adhere to certain principles to best manage risk, according to the Buy Side Risk Managers Forum and Capital Market Risk Advisors (CMRA), a consultancy.

The forum, a group of heads of risk managements and chief risk officers from traditional buy-side asset and investment management firms, recently issued a set of risk principles within each of these three areas, titled “Risk Principles for Asset Managers.”

“This piece is an important update, “says Leslie Rahl, President of the consultancy CMRA and a member of the forum.  “Risk management is a journey not a destination.  It’s something that keeps going and keeps needing updates.”

Governance risk principles concern organizational structure and oversight mechanisms, including the importance of independent controls, segregation of functions, senior management involvement in risk management and oversight and adoption of appropriate policies and procedures.

Investment risk principles relate to the need for risk controls at the portfolio level, and address market risk, liquidity risk, leverage, valuations and other aspects.

Operational risk principles concern risk occurring in the ordinary course of business and in disasters.  These address identifying, assessing and monitoring such risks, setting up adequate systems and minimizing manual processes, managing counterparty credit risk and assuring business continuity in a disaster.

“These principles recognize the broader function for risk management, which is not just computing the numbers and tracking the limits, but the proactive functions that help firms optimize the relationship between risk and rewards,” says Rahl.  “The emphasis on governance has evolved.  The focus on governance is clearly something that the regulators are looking for and where the industry is evolving. The principles should provide an important framework for best practice risk management.  The discussion of risk governance and valuation are particularly critical in today’s market environment.”

 March 17, 2008