Risk management

Background

In addition to yield management, ongoing monitoring of the relevant risks has a crucial role in the success of an investment. Especially in times of persistently low interest rates, the safety blocks of allocation no longer generate sufficient returns, so that investments increasingly have to be made in risky assets. At the same time, the requirement for monitoring of possible loss risks is increasing. FERI provides guidance on risk management processes, from the preparation of a risk manual and risk inventory through to regular reporting and commentary.

Risk management process

Preparation of a risk manual

• Formulation of risk policy and risk strategy
• Development and description of reporting processes against the background of the existing organisational structure (Who reports what, how often, and to whom?)
• Fundamentals of risk budgeting, definition of threshold values/limits
• Description of escalation processes (What to do in case of relevant incidents?)

Risk inventory

• Recording of the main (financial) risks in the investment of liquid and illiquid assets
• If required, also recording of operational risks, including sustainability risks
• Determining the measurability of risks and defining threshold values
• Concluding comments on the risk inventory, including outlook and constructive recommendations for reducing risk exposure

Ongoing risk reporting

• Regular recording and presentation of key risk-relevant ratios at total asset level, mandate or asset class level
• Assessment of the risk situation, identification of the individual risk drivers and, if necessary, guidance regarding the need for escalation or intervention (traffic light system)

Example of risk inventory

• Identification of risks through analysis of mandates, investment management companies and depositaries
• Classification of the materiality of individual risks and development of solutions for quantitative measurement of risk exposure
• Advice regarding possible measures and future positioning for decision-makers

Example of risk reporting

Depending on the extent to which the risk budget for a mandate has been used, escalation levels are determined (traffic light system) and the decision-makers or representatives designated in accordance with the process organisation are informed of the possible measures, which are described in detail in the risk management manual.