Principles of good risk management for money managers, focusing on governance and investment risk, were unveiled today in a report by the Buy Side Risk Managers Forum. The report recommends creation of an internal culture in which understanding and managing risk is everyones responsibility. It targets governance risk, associated with internal organizational structure and oversight mechanisms, and investment risk, related to risk controls at the portfolio level, including market risks.
Events like the recent subprime credit crisis as well as the collapse of Enron Corp. and the mutual fund market-timing scandal underscore needs for the development of a risk-conscious culture, according to the 27-page report, Risk Principles for Asset Managers.
Risk management must be applied at both the enterprise and portfolio level, the report stated. It is not strictly quantitative but also qualitative in nature.
Good risk management has never been more important and is especially timely in light of current events, David Martin, senior vice president/chief risk officer at AllianceBernstein, said in a statement about the report.
Kenneth Winston, managing director/chief risk officer at Morgan Stanley Investment Management, said in the statement, These principles reflect a growing awareness that risk management involves more than measuring and monitoring risk to prevent unanticipated loss. It serves a far broader purpose optimizing the relationship between risk and reward."
Messrs. Martin and Winston chaired the working group of the forum, including representatives of some of the largest asset management companies, which produced the report.
The Buy Side Risk Managers Forum is a group of risk management leaders or chief risk officers at traditional investment management companies.