Fund Risk Management

Since the financial downturn, effective risk management has gained much more importance and popularity than it has ever been. After the financial crisis broke, most of the investors started to demand for a better, efficient, and comprehensive risk management structure. The majority of the CFOs among a wide range of industries, across the globe commonly agrees the fact that fund risk management is the main concern over other issues such as secure equity financing, debt financing-both short term and long term, and asset allocation of various pension plans. In the fund management industry, fund risk management is deemed to be one of the important drivers for offering a stable and secure net asset value to the investors. In a fast changing regulatory landscape, the fund managers have continued to allot more priority to competencies involving analytics and risk management, collateral and liquidity risk management, regulatory compliance, and risk reporting.

There are many areas which are set to change with the fund risk management since lessons have been learnt in the area of fund risk management.

Recent financial downturn has revealed the failure from the part of fund managers and the concerned regulators to interpret the quantitative risk models. Another major failure from the part of fund managers was the lack of understanding the established model’s limitations and the lack of skill in holding the risks by these existing models. So these financial downturns reveal the fact that qualitative risk evaluation should be used in conjunction with the existing quantitative models of fund risk management.

To have a renowned fund risk management, a proper valuation process needs to be put in place. The fund managers must think about the various controls that they have in hand over valuations to make sure that all the details required to declare a proper fund value have been considered. A cross-asset class, enterprise wide approach, will improve the skill to look at the risk on a holistic pattern for an individual or a group portfolio.

Having some kind of automated systems which can provide intra-day risk functionality is a significant move by the fund managers; this move to automate manual risk will improve the ability to recognize and act on the risks as and when it arises.

Since the levels of scrutiny of third party service providers is continue to increase; the use of such service providers is an important factor in fund risk management. All the fund management companies must build a culture wherein the understanding and administration of fund risk management is everyone’s responsibility. Now-a-days, this became a significant part of corporate strategy.