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Investment Management Risk and the South African context

Investment management risk encompasses the possibility of losses which arise from unfavorable market movements, errors, negligence and inability of asset managers to meet client expectations. Asset managers are exposed to investment management risk in the execution of their investment management and operational activities. Failure to adequately identify, measure, manage and monitor this risk has adverse effects on earnings.

A sound investment management risk framework enables a proactive approach to the prevention of undue or extreme losses in client investment portfolios and thus contributes towards long term performance and client retention. It also creates a platform for consistency in the identification, measurement, management, monitoring and reporting of risks across all portfolios and therefore enable asset managers to translate their house view on market movements and their investment philosophy into a risk appetite statement which clearly articulates the way asset managers sees risk, to investors. Anticipated changes in local regulatory obligations, based on regulatory developments observed internationally, should be considered during the development or review of the investment management risk framework.

Key take outs from this report 

Readers of this article are expected to gain the following:

  • An understanding of what investment management risk is
  • An appreciation of why investment management risk is important
  • Insight regarding implementing a sound risk management framework as well as the associated practical limitations.

How can Deloitte help 

Deloitte is a trusted and well-established partner in the provision of risk advisory services. Our service offering for the purposes of managing investment management risk includes the following:

  • Design or review of risk governance structures
  • Design or review of investment management risk frameworks (including related policies and procedures)
  • Quantitative risk analysis (market risk, liquidity risk, credit risk, back testing and stress testing) to aid in risk measurement
  • Design or review of business processes for the purpose of risk management
  • Independent review of the efficiency and effectiveness of current governance structures and risk management frameworks
  • Designing and implementing risk dashboard capabilities for governing bodies; and
  • Provision of risk training for decision making stakeholders or governing bodies.

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