Wednesday, March 25, 2009

2009 E&Y Business Risk Report for Asset Managers

Ernst & Young LLP has issued a document identifying and discussing the top ten business risks for asset managers in the current market environment.
  1. Dealing with the market crisis;

  2. Threats to the reputation of the industry;

  3. Accelerated pace of change in the industry;

  4. Geopolitical, macroeconomic or regulatory shocks;

  5. Poor execution of globalization strategies;

  6. Competition from other areas of financial services;

  7. Model risk;

  8. Missing growth opportunities;

  9. Poor execution of M&A; and

  10. Prolonged reduction in investors' risk appetite.
Though the risks identified are broad ranging, and risk assessment and management are company-by-company processes, these ten areas of risk can help those managing the money of others, including mutual funds directors, understand the new landscape of risks they must oversee.

In addition to the discussion of the ten items above, the report offers some advice as to some of the processes a fund's leadership should engage to create and maintain an effective "risk radar."

We believe that company leadership must:
  • Conduct an annual risk assessment that defines key risks and weights probability and impact on business drivers. The risks in this report can provide the start of that process.
  • Assess risks beyond financial and regulatory risk to consider the wider environment in which the organization operates and the full extent of its operations.
  • Conduct scenario planning for the major risks that they identify and develop a number of operational responses (possibly as part of the planning cycle).
  • Evaluate the organization’s ability to manage the risks that they identify — in particular ensure that the risk management processes are linked to the actual risks that the business faces.
  • Have effective monitoring and controls processes to give both earlier warning and improved ability to respond.
  • Keep an open mind about where risks can come from.
As fund directors seek to understand further the nature and shape of the evolving risks they must oversee, E&Y's document provides a timely and high level starting point.

The full text of E&Y's 2009 Business Risk Report for Asset Managers is available at: